Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 14: Real and Nominal Convergence: Policy Challenges in a Monetary Union
Lorenzo Bini Smaghi1 INTRODUCTION 14.1 The Maastricht Treaty – and, for that matter, the Reform Treaty – says very little on the real economy, aside from the fact that growth and employment are an objective of the European Union. The articles contained in the monetary chapters of the Treaty all refer to nominal variables, be they monetary policy or inﬂation, and so does the section that describes the criteria and procedure for the adoption of the euro. This does not mean, though, that the underlying developments in the real economy are unimportant. In fact, there is a burgeoning literature on the impact that the euro has had on the convergence of the member economies. Among such a wide range of academic contributions, let me refer in particular to papers presented at a conference organized by the ECB in June 2005, which provide evidence of the changes brought about by the euro with respect to trade integration, structural reforms, ﬁnancial integration, business cycle synchronization and inﬂation diﬀerentials.2 Against this backdrop, one may wonder: is it a problem that the criteria for adopting the euro refer to nominal variables – the inﬂation rate, the long-term interest rate and the exchange rate – and to the budget deﬁcit and debt ratios? Should the Treaty have been drafted diﬀerently? I will argue to the contrary. However, while it is wrong to suggest that the adoption of the euro solves all problems, it is equally wrong to suggest that real convergence does not...
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