Monetary integration in the Europen Community

Abstract

ABSTRACT The European Community has achieved considerable progress in the field of monetary integration. The initial attempts in the 1970s did not prove to be very successful; however, there has been a revival of interest in establishing an economic and monetary union in recent years. The Delors Report of 1989 envisaged an economic and monetary union to be attained in three stages. Currently, the Community is in the first stage of the process toward union. The final stage, which comprises the adoption of a single European currency issued by a common central bank, is scheduled to start in January 1999. Europe expects significant benefits from an economic and monetary union. The adoption of a single currency will lead to the disappearance of exchange rate uncertainty and transaction costs, and thus have positive effects on efficiency and growth. Inflation will be reduced to a common very low rate through the establishment of a European central bank with the priority objective of price stability and political independence. The role of national budgetary policies will be revised in a way to permit flexibility combined with enhanced discipline over excessive deficits and coordination to ensure an appropriate policy mix for the Community. Europe will also assume a role of increased importance in the international system. The purpose of this study is to give an overview of the developments in Europe toward an economic and monetary union, as well as examining the theoretical background and practical implications of monetary integration. Ill