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European Socio-Economic Integration pp 27–41Cite as

Economic and Monetary Integration in Europe: Evidence on Fiscal and Current Account Effects

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Part of the book series: Innovation, Technology, and Knowledge Management ((ITKM,volume 28))

Abstract

Both the economic and monetary aspects of European integration have always been understood to have benefits, as well as costs, for the countries involved. The advantages of freer trade, particularly within Europe, are generally acknowledged to generate benefits that vastly exceed any costs, so the project of European economic integration has almost always been viewed as greatly beneficial, as evidenced by the large number of countries which have wished to be considered as applicants over the years.

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Notes

  1. 1.

    This ambiguity about the net benefits of monetary integration explains why some countries, already members of the EU, opted to stay out of the euro (Denmark, Sweden, and the UK).

  2. 2.

    The concept attracted wide attention very quickly. McKinnon (1963) identified openness as a superior criterion, Kenen (1969) suggested product diversification as a crucial consideration, and several other contributors have proposed a number of different criteria. See Ishiyama (1975) for a survey of the early literature.

  3. 3.

    Not so long ago, Chinn and Frankel (2008) were predicting that the euro would challenge the dollar’s leading international reserve currency status by as early as 2015.

  4. 4.

    See Rogoff (2011) and Roubini (2011) for recent examples.

  5. 5.

    Obstfeld and Rogoff (1996) consider a similar two-period model for a small open economy. The present model expands Obstfeld and Rogoff’s by endogenizing government expenditures.

  6. 6.

    The larger economies of Germany and France are excluded because they do not fit the assumptions of the theoretical model as well as the smaller economies.

  7. 7.

    It should be pointed out that Fig. 2.1 does not establish causality. The failure of the Greek GDP per capita to converge to the German level after EU membership does not imply that membership in the EU caused divergence. Greek and German income paths were determined by a variety of factors, including the economic policies of the two countries at the time. The graph is nevertheless significant because it will help explain the behavior of some of the other variables when expressed as percent of GDP.

  8. 8.

    The deciding factor is data availability from the IMF’s World Economic Outlook (April 2011), where the earliest observation is for 1980. Data constraints prevent the use of negative values for t in our EU calculations and also prevent going back more than 4 years in the euro calculations.

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Authors and Affiliations

  1. Department of Economics, University of Illinois, 601 S. Morgan Street, Chicago, IL, 60607-7121, USA

    Georgios Karras

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  1. Georgios Karras
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Correspondence to Georgios Karras .

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Editors and Affiliations

  1. The George Washington University, 500 23rd Street NW, Apt. B-121, Washington, DC, 20037, USA

    Elias G. Carayannis

  2. 17 Rizou Neroulou Street, Athens, 11141, Greece

    George M. Korres

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Karras, G. (2013). Economic and Monetary Integration in Europe: Evidence on Fiscal and Current Account Effects. In: Carayannis, E., Korres, G. (eds) European Socio-Economic Integration. Innovation, Technology, and Knowledge Management, vol 28. Springer, Boston, MA. https://doi.org/10.1007/978-1-4614-5254-6_2

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