The Euro

The Euro

Its Origins, Development and Prospects

Chris Mulhearn and Howard R. Vane

This important new book provides a non-technical, comprehensive overview of the central issues surrounding the euro. Following an introduction to the origins of European integration, the authors proceed to examine the first concrete steps in the process that led to the creation of the euro area. The book then explores the economics and architecture of the euro, highlights the issues surrounding enlargement, and reflects on the future of European monetary union. To help bring the subject matter alive, the book also contains interviews with leading academics in the field including Willem Buiter, Nick Crafts, Paul De Grauwe, Patrick Minford, Niels Thygesen, Andrzej Wojtyna and Charles Wyplosz.

Chapter 5: Euro-area Enlargement: Denmark, Sweden and the United Kingdom

Chris Mulhearn and Howard R. Vane

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


INTRODUCTION 5.1 In Chapter 3, section 3.1, we charted the three main landmark events since the mid-1980s – the Single European Act, 1986; the Delors Report, 1989; and the Maastricht Treaty, 1992 – that shaped the transition to economic and monetary union (EMU) in Europe and culminated in the launch of the euro. You will recall that the third and final stage of EMU began on 1 January 1999 when exchange rates were irrevocably fixed for the former national currencies of the then-11 original members of the euro area. Of the remaining four EU member states, Greece failed to meet the Maastricht convergence criteria – subsequently adopting the euro on 1 January 2002 – while Denmark, Sweden and the UK elected to retain their national currencies. The purpose of the present chapter is to consider membership issues for the three ‘outsiders’ among the 15 (pre-2004) European Union (EU) countries. To understand why Denmark, Sweden and the UK have not, as yet, adopted the euro requires a discussion of the background to some of the main issues around membership for each country. Although the economies of all three countries are closely linked to the euro area – for example, all three economies exhibit a high degree of convergence of their business cycles with that of the euro area and also undertake substantial trade with the euro area – there are a number of country-specific issues which inform their individual approaches to EMU. We begin by looking at the case of Denmark, which – with the UK – was...

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