Working Paper: CEPR ID: DP1728
Authors: Willem H. Buiter; Anne C. Sibert
Abstract: If Stage Three of EMU starts on 1 January 1999, transition issues remain on two time scales. Until 1 July 2002, national currencies and the euro coexist as legal tender. We argue that intra-EMU currency risk exists in principle during that period, but that no EMU member can be forced out through speculative attacks. Cohabitation of Ins and Outs has an open-ended time scale. We discuss the effect of EMU on incentives for both Ins and Outs to undertake structural reform and the coordination problems associated with the distribution of seigniorage revenue and the Stability and Growth Pact.
Keywords: European Monetary Union; Stability and Growth Pact; Structural Reforms
JEL Codes: E58; E61; E63; F31; F33; F41; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| speculative attacks (D84) | member countries' decisions to stay or leave the EMU (F36) |
| commitment to remain in EMU (F36) | effectiveness of speculative attacks (F31) |
| monetary policy frameworks (E63) | economic stability (E63) |
| size of the eurozone (F36) | strength of the euro (F36) |
| euro's integration (F36) | external exchange rate dynamics (F31) |
| currency regimes (F33) | economic reform incentives (E69) |
| monetary union (F36) | fiscal dynamics (E62) |
| design of the Stability and Growth Pact (E61) | effectiveness in coordinating fiscal policies (F42) |
| current member dynamics (D71) | prospects for future expansions of the EMU (F36) |