The Deflationary Consequences of the Single Currency

Philip Arestis and Malcolm Sawyer ()

Chapter 7 in The Impact of the Euro, 2000, pp 100-112 from Palgrave Macmillan

Abstract: Abstract The European single currency may bring some relatively small benefits in terms of the reduction of transactions costs for trade between European Union member countries, which would have to be balanced against the costs of transition to a single currency (which a recent estimate put at $30 billion1). But ‘the likely amounts [of the benefits] are not however very large, and once the one-off costs of converting to the euro are taken into account as well, the net transactions savings do not provide a strong reason for moving to the euro’ (Currie, 1997, p. 6). Whilst there may be some gains from a single currency in terms of reduction of transactions costs (and some stimulus to trade between EU member countries, though much of that would be at the expense of trade with non-EU countries), the major impacts of the single currency will arise from the nature of the institutional and policy arrangements within which the single currency is likely to be embedded. This chapter argues that those institutional and policy arrangements will be severely deflationary, with the clear implication that the single currency will impose substantial costs in the form of higher levels of unemployment and loss of output.

Keywords: Exchange Rate; Interest Rate; Monetary Policy; Fiscal Policy; European Central Bank (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-37244-3_7

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DOI: 10.1057/9780230372443_7

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