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2 - Economic and monetary union: critical notes on the Maastricht Treaty revisions
- Edited by Francisco Torres, Francesco Giavazzi
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- Book:
- Adjustment and Growth in the European Monetary Union
- Published online:
- 29 January 2010
- Print publication:
- 21 October 1993, pp 9-41
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Summary
Introduction
The inter-governmental conference (IGC) on economic and monetary union (EMU) which started in Rome in December 1990 and was concluded in Maastricht one year later had two main tasks. The first was to define, as precisely as possible, how collective authority over economic policy will be exercised in the final stage of EMU. This entailed setting out the legal and institutional framework for full monetary union and taking the necessary steps for the implementation of the non-monetary policies which will accompany the irrevocable locking of parities among the participating currencies and the subsequent introduction of a single currency. Preparations for the IGC, notably the draft statute proposed by the committee of EC central bank governors in November 1990, and early work in the IGC on EMU focused on this task. The institutional design which has emerged is the main achievement of the past year's negotiations. It has revealed a degree of support, which could not have been expected when the EMU debate started, among the policy-makers in the Community for entrusting joint monetary policy to a central banking institution which is (i) committed to the primary objective of price stability, and (ii) remarkably independent, through a number of safeguards, from short-term political pressures.
Discussion
- Edited by Alberto Giovannini, Colin Mayer
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- Book:
- European Financial Integration
- Published online:
- 04 August 2010
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- 04 April 1991, pp 328-340
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Summary
The Delors Report, and the decisions taken by the EC Council of Ministers in June and December 1989, lay out a clear, but very slow process towards monetary unification in Europe. Until the start of Stage II – that is not before 1993 – realignments of EMS central parities will remain possible, and exchange-rate bands will not be reduced below the current 2.25% margins. The transition to irrevocably fixed parities is not foreseen before the start of Stage III – that is, not before 1996. A single currency shines high above the horizon, but its distance is indeed astronomical – not before the end of the decade.
Dornbuch challenges the EC blueprint, arguing that Europe can only lose from holding up the process of monetary unification: ‘In most European countries monetary policy has become almost powerless. […] Once the ability to conduct any kind of independent monetary policy is far gone, one can ask why countries would not go ahead and abandon the pretence altogether.’ The cost of not doing so is an unnecessary high tax burden. This is because, as long as currencies are allowed to fluctuate in bands, the bands are not irrevocably fixed, interest rates in ‘weak-currency’ countries – e.g. Ireland and Italy – are higher than they would be if their exchange rates were irrevocably linked to the Deutsche mark without any margin. Since these countries are also those suffering from large budget deficits and exceptionally high public debt levels, a prolonged transition will have long-lasting consequences: it will keep the cost of debt service unnecessarily high, and will thus require an even higher tax burden in the future.
11 - Panel discussion on the prospects for a European Central Bank
- Edited by Marcello De Cecco, Alberto Giovannini
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- Book:
- A European Central Bank?
- Published online:
- 05 February 2012
- Print publication:
- 25 May 1989, pp 337-364
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Summary
The Single European Act and monetary integration
The Single European Act of 17 February 1986 aims at the establishment of an area without internal frontiers permitting the free movement of goods, persons, services and capital by 1992 so as to improve the allocation of resources and put a seal, thirty-five years after the signing of the Treaty of Rome, on the integration of Europe. The liberalization of all capital movements – which will take place by 1990 – and the creation of a European financial market are therefore key objectives that will influence not only the conduct of monetary and credit policies in the coming years but also the structure of financial systems.
It should indeed be recognized that complete integration of national financial markets entails exchange rates remaining fixed. Otherwise, financial assets held in different currencies will not be perfectly substitutable, an indispensable condition for full integration. Financial integration itself calls for monetary convergence. In principle, sovereignty in monetary matters, which takes the form of autonomy in controlling the money supply and the exchange rate, is not compatible with the objective of creating by 1992 a single European financial market.
The benefits associated with currency integration depend in the final analysis on the ability to ensure, after a period of steady convergence, permanently stable exchange rates within the area and, ultimately, a single currency.
1 - Introduction
- Edited by Francesco Giavazzi, Stefano Micossi, Marcus Miller
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- Book:
- The European Monetary System
- Published online:
- 12 March 2010
- Print publication:
- 06 October 1988, pp 1-20
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Summary
The European Monetary System (EMS) has attracted great attention as a framework for policy coordination ever since it was conceived in 1978. Disillusioned by the prospects for global monetary reform and by the performance of the floating exchange-rate system, the EMS founding fathers wanted to restore, within as large a part as was possible of the European Communities, a system of ‘fixed but adjustable’ exchange rates. Such a system would protect the large intra-European trade flows against the sharp shifts in competitiveness which were seen as quite possible in its absence. It would also contain divergence of national inflation rates among participants and permit lower and more stable inflation throughout. It was seen, finally, as a stabilising complement to the expansionary fiscal programme to facilitate global economic adjustment which the Europeans – and Germany in particular – had undertaken at the Bonn Summit in July 1978.
This vision of the evolution of ‘a zone of monetary stability’ had a strong element of damage limitation in it. Yet it was rightly regarded as highly ambitious at the time because it brought back into European management the currencies of some countries – France and Italy in particular – which had stayed apart from earlier efforts; the system had subsequently evolved well beyond its original intentions, despite the absence of any institutional step. The exchange-rate mechanism has become tighter, monetary policy coordination is now closer, and capital mobility higher than was the case in the early years of the EMS.
Since the system was on the drawing board ten years ago it has inspired a massive literature.