Working Paper: CEPR ID: DP1685
Authors: Charles Wyplosz
Abstract: This paper reviews the history, economic rationale and main components of the project of establishing a monetary union in Europe by 1999. The adoption of a single currency is shown to be the best available option following the liberalization of capital movements. Much of the institutional design (central bank independence and objectives, fiscal restraints) reflects Germany?s fears of inflation as it is asked to give up its currency. The fiscal restraints are excessive, however, and a source of contractionary bias. The paper also presents the timetable of the final countdown.
Keywords: Europe; Monetary Union; Fiscal Restraints; Convergence; Capital Mobility
JEL Codes: E58; E61; F36; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital mobility (F20) | Adoption of a single currency (F36) |
| Excessive fiscal constraints (H72) | Economic growth (O49) |
| Excessive fiscal constraints (H72) | Public support for monetary union (F36) |
| Tight monetary policies (E52) | Slow-growth environment (O44) |
| Slow-growth environment (O44) | Budget deficits (H62) |
| Tight monetary policies (E52) | Budget deficits (H62) |