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EMU and Economic Policy in Europe

The Challenge of the Early Years

Edited by Marco Buti and André Sapir

EMU is a completely new policy regime which has significant economic implications and which, it is hoped, will ultimately enhance the role of Europe on the world stage. EMU and Economic Policy in Europe takes stock of the initial experiences of EMU and assesses the challenges which will have to be addressed in the early years of its existence to ensure its long-term objectives are successfully achieved.
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Chapter 16: EMU – The First 10 Years: Challenges to the Sustainability and Price Stability of the Euro Area – What Does History Tell Us?

Lars Jonung


16. EMU – the first 10 years: challenges to the sustainability and price stability of the euro area – what does history tell us? Lars Jonung 1. INTRODUCTION1 The creation of the EMU and the euro is a unique event. Never before has a group of independent nation states given up their national currencies to form a common monetary union based on a new unit of account under the leadership of a common monetary authority – while still retaining political independence. Economic policies – except for monetary policy – will primarily be framed by the individual Member States or by coordination through a system of persuasion, peer pressure and procedures presently being set in motion. EMU is thus a gigantic experiment with no precedence in monetary history. EMU will have effects on practically every area of economic policy making in Europe: it will influence the allocation of resources, the distribution of income, stability and growth, as well as the formal and informal institutions on labour, product and financial markets within the euro area. EMU will most likely affect Europe’s economic and political landscape in the future in fundamental, but as yet, unknown ways. In short, monetary history is presently in the making in Europe. The euro, the newborn currency, will face a number of challenges during the first decade of the 21st century. The purpose of this report is to focus on two such challenges: first, the endurance prospects for the euro, and second, the inflation performance of the euro area...

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