The Instability of Halfway Measures in the Transition to a Common Currency

Clas Wihlborg and Thomas Willett

Chapter 7 in The European Community after 1992, 1992, pp 121-137 from Palgrave Macmillan

Abstract: Abstract Political interest in the creation of a European Monetary Union has grown rapidly over the last several years. By the traditional economic criteria of the theory of optimum currency areas such a movement does not appear well founded (see, for example, Thygesen, 1987 and Wihlborg and Willett, 1991).1 While increasing economic and financial integration strengthen the case for a union, factor mobility is still far less than would be required for an optimum currency area. Given the broader political considerations motivating much of the push for monetary union, economic analysis seems unlikely to slow this movement significantly. It may still play a useful role in evaluating the advantages and disadvantages of alternative transitional stategies for the movement toward full monetary union; however, such economic analysis must go beyond the traditional optimal policy approach and focus upon the interactions of economic considerations and political incentives within a broader political economy framework.

Keywords: Exchange Rate; Monetary Policy; Central Bank; Monetary Union; Capital Mobility (search for similar items in EconPapers)
Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-12048-2_7

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DOI: 10.1007/978-1-349-12048-2_7

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