The Challenge of the Early Years
Edited by Marco Buti and André Sapir
15. 1. EMU and enlargement Barry Eichengreen and Fabio Ghironi1 INTRODUCTION In this chapter we consider how Europe’s monetary union will evolve in the next ﬁve to ten years. We concentrate on what is likely to be the most important change in that period, namely, the increased number and heterogeneity of the participating states. While the current members of the monetary union will almost certainly continue to converge in terms of per capita incomes, it is probable that they will be joined in EMU by a number of Eastern European countries that have not yet been admitted to the EU itself.2 These new members will diﬀer sharply from the incumbents in terms of their economic structures, their per capita incomes, and, potentially, their growth rates. We focus here on the implications of this development for the structure, organization and operation of EMU.3 This focus dictates what we take up and what we leave aside. Thus, we focus on prudential supervision and lending of last resort on the grounds that the addition of countries with recently-created and still underdeveloped ﬁnancial systems will be among the most prominent consequences of the growth of EMU. We focus on the coordination of ﬁscal policies on the grounds that the ﬁscal positions and problems of the accession economies will diﬀer from those of the incumbents. We focus on labour market ﬂexibility on the grounds that the admission of these new members with large populations and relatively low wages will have potentially important labour...
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