Monetary Integration in Europe

165 Pages·2007·13.067 MB·English

by  Horst Tomann (auth.)

Studies In Economic Transition
General Editors: jens H~lscher, Reader in Economics, University of
Brighton; and Horst Tomann, Professor of Economics, Free University
Berlin
This series has been established in response to a growing demand for a
greater understanding of the transformation of economic systems.
It brings together theoretical and empirical studies on economic
transition and economic development. The post-commun1st transition
from planned to market economies is one of the main areas of applied
theory because in this field the most dramatic examples of change
and economic dynamics can be found. The series aims to contribute
to the understanding of specific major economic changes as well as to
advance the theory of economic development. The implications of
economic policy will be a major point of focus.
TItles include:
Lucian Cernat
EUROPEANIZATION, VARIE11ES OF CAPITAUSM AND ECONOMIC
PERFORMANCE IN CENTRAL AND EASTERN EUROPE
Irwin Collier, Herwig Roggemann, OUver Scholz and Hom Tomann (editors)
WELFARE STATES IN TRANSmON
East and west
Bruno Dallago and Ichiro Iwasaki (editors)
CORPORATE RESTRUcnTRlNG AND GOVERNANCE IN TRANSmON
ECONOMIES
Bruno Dallago (editor)
TRANSFORMATION AND EUROPEAN INTEGRATION
The Local Dimension
Hella Engerer
PRIVATIZATION AND ITS LIMITS IN CENTRAL AND EASTERN EUROPE
Property RIghts 10 Transition
Saul Estrin, Grzegorz W. Kolodko and MllIca uvaUc (editors)
TRANSmON AND BEYOND
Hubert Gabrlsch and RQdJger Pobl (editors)
EU ENlARGEMENT AND ITS MACROECONOMIC EFFECTS IN EASTERN EUROPE
Currendes, Prices, Investment and Competitiveness
Oleh Havrylyshyn
DIVERGENT PATHS IN POST -COMMUNIST TRANSFORMATION
capitalism for All or Capitalism for the Few?
lens HOlscher (editor)
FINANCIAL TURBULENCE AND CAPITAL MARKETS IN TRANSmON
COUNTRIES
Jens HOlscher and Anla Hochberg (tditors)
EAST GERMANY'S ECONOMIC DEVF.WPMENT SINCE UNIFICATION
Domestic and Global Aspects
lraj Hoshi, Paul JJ. Wellens and Anna-Wzl~tek-J(ub1ak (editors)
INDUSTRIAL COMPE1TIlVENESS AND RESfRUCIlJRING IN ENLARGED EUROPE
How AccessIon Countries Catch Up and Integrate In the European Union
Mlhaela Kelemen and Monika ((ostera (editors)
CRITICAL MANAGEMENT RESEARCH IN EASTERN EUROPE
Managing the Transition
Emil). Kirchner (editor)
DECENTRALIZATION AND TRANSmON IN THE VISEGRAD
Poland, Hungary, the Czech Republic and Slovakia
David Lane (editor)
THE TRANSFORMATION OF STATE SOCIALISM
System Change, Capitalism, or Something Else?
David Lane and Martin Myant (editors)
VARIE11ES OF CAPITAUSM IN POST-COMMUNIST COUNfRIES
Tomasz Mlddewlcz
ECONOMIC TRANSmON IN CFNfRAL EUROPE AND THE COMMONWEALllf
OF INDEPENDENT STATES COUNfRIES
Milan Nikolic
MONETARY POLICY IN TRANSmON
Inflation Nexw Money Supply In Postcommunlst Russia
Julle Pellegrin
1lfE POUTlCAL ECONOMY OF COMPETITIVENESS IN AN ENLARGED EUROPE
Stanlslav Poloucek (editor)
REFORMING 1lfE FINANCIAL SECTOR IN CENTRAL EUROPEAN COUNfRIES
G~S.Roblns
BANKING IN TRANSmON
East Germany after Unification
Johannes Stephan
ECONOMIC TRANSmON IN HUNGARY AND EASf GERMANY
Gradualism and Shock Therapy In Catch-up Development
Johannes Stephan (editor)
TECHNOLOGY TRANSFER VIA FOREIGN DIRECT INVES1MENT IN CENTRAL
AND EASTERN EUROPE
Horst Tomann
MONETARY INTEGRATION IN EUROPE
HansvanZon
llfE POUTlCAL ECONOMY OF INDEPENDENT UKRAINE
Adalbert Winkler (editor)
BANJ<ING AND MONETARY POLICY IN EASTERN EUROPE
The First Ten Years
Monetary Integration in
Europe
Horst Tomann
palgrave
macmillan
(I Horst Tomann 2007
Softcover reprint of the hardcover 1st edition 2007 978-0-230-01888-4
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Monetary Integration in Europe
Horst Tornann
For Karin
Contents
List of Figures, Tables and Boxes ix
List of Abbreviations Xl
Preface. . . . . . . . . . . . . . . xiii
1 The History of Monetary Integration in Europe 1
1.1 The European Payments Union . . . . . 2
1.2 The Bretton Woods System . . . . . . . 6
1.3 A currency system of 'no commitments' . 9
1.4 The European Monetary System. . . 11
2 Theory of Optimum Currency Areas 17
2.1 Wage rigidity and money illusion .. 20
2.2 The credibility of a common currency. . 23
2.3 Effects of collusion in the labour market 25
3 The Economic and Monetary Union: Institutions and
Credibility 33
3.1 The new money constitution . . . . . . . . . . . 34
3.2 Independence, accountability and transparency. 39
3.3 The EMU as a regime of low inflation. . . . . . 44
4 The Monetary Policy Strategy of EMU 49
4.1 How monetary policy affects expenditures and prices 49
4.2 Concepts of monetary policy. . . . . . . . . . . . .. 56
4.3 The performance of the Eurosystem . . . . . . . . .. 63
5 Fiscal Policy Coordination and the Stability and Growth
Pact 75
5.1 How fiscal policy affects aggregate demand 76
5.2 Is there a need for a national fiscal policy? 79
vii
viii Contents
5.3 The Stability and Growth Pact 81
5.4 Fiscal policy in EMU . . . . . . 84
5.5 The reform debate ...... . 87
6 The EMU and the Wage Bargain 93
6.1 How the wage bargain affects employment and real
wages .......................... 95
6.2 Real wage flexibility in the EMU ........... 102
6.3 Interaction of monetary policy and the wage bargain 112
7 Real Convergence in a Monetary Union 121
7.1 Long-term effects of a monetary union . 122
7.2 Wage and price adjustments and the catch-up 124
7.3 Real interest rates and growth divergence. 129
7.4 Policy implications . . . . . . . . . . . 131
8 The New European Monetary System 135
8.1 Basic choices for pre-ins ........ 136
8.2 Features of ERM II . . . . . . . . . . . 141
8.3 The performance of monetary convergence 144
Index. . . . . . . . . . . . . . . . . . . . . . . . 151
List of Figures, Tables and
Boxes
Figures
1.1 The case of convertible currencies 4
1.2 Bilateral trade agreements . . 5
4.1 A stylised illustration of the transmission mechanism
from interest rates to prices 56
4.2 Key ECB interest rates . . . . . . 66
4.3 HICP inflation .......... 67
4.4 M3 growth and the reference value 68
4.5 Real GOP, industrial production and industrial con-
fidence for the euro area . . . . . . . . . . . . . . .. 70
4.6 Nominal effective exchange rate of the euro and oil
prices. . . . . . . . . . . . . . . . . . . . . . . . . .. 73
4.7 Indicators of long-term inflation expectations in the
euro area. . . . . . . . . . . . . . . . . . . . . . . 73
5.1 Fiscal stance and cyclical conditions in EU Member
States, 2004 . . . . . . . . . . . . . . . . . . . . . .. 85
6.1 Unemployment rates in Europe and the United States 103
8.1 The nominal exchange rate of the zloty ........ 146
ix