The Euro

The Euro

Evolution and Prospects

Philip Arestis, Andrew Brown and Malcolm Sawyer

The authors offer a sustained argument that the single currency as currently implemented does not promise to deliver prolonged growth. They contend that the economic impact of the euro, and its accompanying institutions, is likely to be destabilising and deflationary; that the political impact is profoundly undemocratic and that the social consequences are likely to be deleterious. They do not reject the concept of a single currency but are highly critical of policy arrangements such as the Stability and Growth Pact which govern the euro. The authors propose alternative policy and institutional arrangements within which the euro should be embedded. They demonstrate that these would have the benefits of a single currency whilst avoiding many of the potential costs identified by detractors.

Chapter 2: From Common Market to EMU: An Historical Perspective on European Economic and Monetary Integration

Philip Arestis, Kevin McCauley and Malcolm Sawyer

Subjects: economics and finance, money and banking, post-keynesian economics


2.1 INTRODUCTION The roots of a European single currency and monetary union can be traced back to the start of the common market in 1958 and possibly further still to the creation of the Latin Monetary Union by Belgium, Italy, Switzerland, Bulgaria, and Greece 130 years ago.1 Since the establishment of the European Economic Community (EEC) in 1957, attempts at monetary integration and, ultimately monetary union, have tended to assume importance only as a result of financial crisis and becoming a vague objective as soon as the crisis recedes. In recent years, however, this search has assumed greater urgency for three main reasons. First, monetary union can be viewed as a response by European policy makers to the increases of intra-European trade which has meant that different currencies and fluctuating exchange rates have become an increasing nuisance. Since the [successful] implementation of the Single Market Programme this has become more evident. Second, politically, there was a continual search for increased stability and security in Europe, which crucially hinged on anchoring Germany within Europe. And third, many economic interest groups especially business interests perceived a single unified and integrated European economy as serving their interests (Pinder, 1996, p. 123). Economic union has followed a rather smoother transition path. Economic integration was used after the Second World War to realise political goals, chiefly to anchor West Germany within a Western European alliance. Under this scheme common governance was deemed to be the best structure; other structures such as intergovernmental cooperation were not...

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