6. Conclusion: EMU is a “Premature Monetary Union”
The EMU is a ‘premature monetary union’. It is premature in its overall structure (i.e. the absence of an effective fiscal constitution — which it vitally needs), and also in the admission of countries that should not have been admitted given that their debt/GDP ratios were at levels that would not be safe for the union as a whole (Greece, Italy and maybe Belgium). It is also premature in the sense that the rules of admission to the union are not well designed, particularly as regards the choice of the exchange rate at which currencies will be converted into euros. One question flowing from this analysis is whether EMU can be repaired ‘on the go’ (is it, figuratively, a ship or a plane?).
Second, given the political difficulty of enacting the reforms I have suggested, the usefulness of such proposals (and many of those made by other authors) may be doubted. However, EMU may not be the last MU to be created. There has been talk of an East Asian Monetary Union. So analyzing the errors that have been made in setting up the EMU need not be a pointless task, even if EMU itself proves unreformable.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Bratkowski & Rostowski (2002). The EU attitude to unilateral euroization: misunderstandings, real concerns and sub-optimal admission criteria. Economics of Transition, 10(2), 445–468.
Buiter, W. & Grafe, C. (2002). Patching up the pact — some suggestions for enhancing fiscal sustainability and macroeconomic stability in an enlarged Euiropean union. CEPR Discussion Paper, 3496.
Buti, M., Eijfinger, S. & Franco, D. (2003). Revisiting the stability and growth pact: grand design or internal adjustment? European Economy, January, from http://europa.eu.int/comm/economy_finance
Casella, A. (2001). Tradeable deficit permits. The Stability and Growth Pact — The Architecture of Fiscal Policy in EMU, Palgrave, Basingstoke.
European Commission (2002). Public finances in EMU. European Economy, June, from http://europa.eu.int/comm/economy_finance/publications/european_economy/2002/ee402en.pdf
Gros, D. (2004). Learning from each other: competing for structural reforms in Europe. Paper presented to the Aspen European Dialogue Conference at Venice, February 27–29.
H.M. Treasury, (1998). The code for fiscal stability. London.
Ivo, A. & Lemmen, J. (1999). The vulnerability of banks to government default risk in EMU. Financial Markets Group Special Paper, 115, July.
Pisani-Ferry, J. (2002). Fiscal discipline and policy co-ordination in the Eurozone: assessment and proposals. Paper prepared for the Group of Economic Analysis of the European Commission, Brussels.
Thygessen, N. (1998). Fiscal institutions in EMU and the stability pact. Social Challenges of Economic and Monetary Union eds. P. Pochet and B. Vanhercke, European Interuniversity Press.
Wyplosz, C. (2002). Fiscal policy: rules or institutions? Paper prepared for the Group of Economic Analysis of the European Commission, Brussels.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2006 Springer
About this chapter
Cite this chapter
Rostowski, J. (2006). How to Reform the Stability and Growth Pact. In: Dabrowski, M., Rostowski, J. (eds) The Eastern Enlargement of the Eurozone. Springer, Boston, MA. https://doi.org/10.1007/0-387-25766-7_9
Download citation
DOI: https://doi.org/10.1007/0-387-25766-7_9
Publisher Name: Springer, Boston, MA
Print ISBN: 978-0-387-25764-8
Online ISBN: 978-0-387-25766-2
eBook Packages: Business and EconomicsEconomics and Finance (R0)