European Currency Union and the EMS

Ray Barrell

National Institute Economic Review, 1990, vol. 132, 59-66

Abstract: The Delors report on monetary union in Europe has enlivened the debate on European monetary integration. We would argue that the debate has avoided one of the major issues it should be addressing. There has been very little discussion of the performance of a monetary union when there are external shocks. It is not obvious that a monetary union would cope better with external shocks than would the individual components of the union if they were free to respond. Both exchange-rate and monetary policies can be seen as shock absorbers. Their use can reflect the structural differences between economies, allowing both for differences in comparative advantage that arise from natural endowments such as oil reserves and for differences in wage and price behaviour which, although not immutable, may take some time to remove.

Date: 1990
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