European Monetary Integration

European Monetary Integration

Past, Present and Future

Edited by Eric J. Pentecost and André Van Poeck

This highly topical book examines the development and future prospects for economic and monetary union in Europe. European Monetary Integration examines the background to economic and monetary union from a historical perspective that distinguishes between national and supranational currency areas, and an optimal currency area theory. The gradualist transition process is also considered.

Chapter 7: EMU and European unemployment

André van Poeck and Alain Borghijs

Subjects: economics and finance, financial economics and regulation, money and banking


André van Poeck and Alain Borghijs 1 EUROPEAN UNEMPLOYMENT AT THE START OF EMU Is Economic and Monetary Union the long expected cure for European unemployment as has often been proclaimed, or does EMU stand for Even More Unemployment? This chapter attempts to shed some light on the effect that monetary union is likely to have on European unemployment. The issue is not only relevant from a theoretical perspective but it is also of utmost social importance. Many European countries struggle with high and persistent unemployment. As Table 7.1 shows equilibrium unemployment1 in the EMU countries is on average almost twice as high as in the non-EMU countries. Moreover in seven out of the 11 EMU countries (among which Germany, France and Italy) equilibrium unemployment has increased in the 1990s while the other EMU countries experienced stable or decreasing equilibrium unemployment rates. In the non-EMU group only three out of 11 countries saw their equilibrium unemployment rates increase in the 1990s. The other countries (for example, the US and the UK) registered stable or falling equilibrium unemployment rates. The European unemployment problem has a number of common features. The first is the high share of long-term unemployment. This is illustrated in Table 7.2. About half of the people in the European unemployment pool have been continuously without a job for more than a year. This is not only remarkably high compared to the US (about 10 per cent) or Japan (about 20 per cent), but this figure has remained fairly...

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