International Monetary Policy after the Euro
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International Monetary Policy after the Euro

Edited by Robert A. Mundell, Paul J. Zak and Derek Schaeffer

This fascinating book, a dialogue by leading economists, offers an extensive review of the impact of the introduction of the euro on the international monetary system.
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Chapter 3: Internal aspects of the euro

Robert Bartley


Introduced by Robert Bartley ROBERT BARTLEY: I think it might be a good note to start the afternoon by underlining what Václav Klaus and others said this morning, which is that the introduction of the euro is an absolutely stunning innovation. There is a supranational central bank that is running the euro, and if you stop to think about it, that is something that would have been unthinkable only a few years ago. I do not know if there is any historical example of such a creature, although I suppose if anyone could come up with one it would be Bob [Mundell]. Nevertheless, it is really a stunning development and could be a precedent for an even larger development like a world central bank. In terms of the internal questions that arise, the first question you have to consider is the temptation that having started this magnificent experiment of a supranational central bank, do you want to build a new nation-state to fit under it? I think this is the wrong way to go. The surrender of sovereignty that was involved in the creation of this new central bank was a very bold step for the European leaders and for [former Chancellor of Germany Helmut] Kohl in particular, however I think the markets also had something to do with it and reduced the sovereignty that nation-states used to have. The principal use of monetary sovereignty was to inflate nine months before an election. Money illusion would mean...

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