The Euro
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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.
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Chapter 3: The Economics of the Euro

Chris Mulhearn and Howard R. Vane


Having traced the history of European economic and political integration since the Second World War (Chapter 1), and the long process of European monetary integration prior to the advent of the euro (Chapter 2), we now turn to examine the euro’s emergence and the economic principles upon which the new currency rests. We begin by charting in some detail the three main landmark events since the mid-1980s that shaped the transition to economic and monetary union (EMU) in Europe and the launch of the euro in January 1999. 3.1 3.1.1 THE TRANSITION TO EUROPEAN ECONOMIC AND MONETARY UNION The Single European Act (SEA), 1986 As discussed in Chapter 1, section 1.2, the process of European market unification began when the six founding members of the European Coal and Steel Community signed the Treaty of Rome in 1957. You will recall that the Treaty of Rome established a customs union, the most important features of which included measures designed to eliminate all internal customs duties and trade restrictions between its six member states, and the introduction of a common external tariff on goods from the rest of the world. Although by the end of the 1960s the European Economic Community (EEC) had succeeded in eliminating internal tariffs and quotas on trade between its member countries, there remained various, what we might call ‘administrative’, barriers to trade which were a drag on the free movement of goods and services. For example, in Europe’s car market, trade was discouraged by the imposition...

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