The Challenge of the Early Years
Edited by Marco Buti and André Sapir
1. EMU in the early years: diﬀerences and credibility Marco Buti and André Sapir 1. EMU IN THE EARLY YEARS Europe’s monetary union is unlike any other current or historical example of monetary uniﬁcation in two fundamental respects. First, there is no instance of a group of countries with a single currency controlled by a single central bank, where each state retains such a large degree of political and ﬁscal autonomy as in Economic and Monetary Union (EMU). Second, even in the history of European integration, there is no instance of a common policy based on a sole country’s institutional set-up as in the case of monetary policy. When relatively protectionist France and Italy had to forge the EC’s Common External Tariﬀ with relatively liberal Benelux and Germany, the solution was simple: use the average tariﬀ. With the European Central Bank (ECB), there was never a question of adopting the average policy of the Member States; it was clear from the start that the union’s central bank would be like the Bundesbank, with a strong commitment to price stability. The extraordinary nature of EMU was bound to raise questions about its credibility. There are two facets to the issue. One is about the degree of commitment of the ECB toward price stability, where the question is whether the ECB’s commitment is as solid as the Bundesbank’s. The other facet concerns the capacity of the system to respond to economic shocks, which brings up two problems: the exposure of...
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