Implications of EMU for the European Community

TL;DR

This paper discusses the economic implications and policy choices of the European Monetary Union (EMU), emphasizing its benefits, costs, and institutional arrangements, with a focus on France's economic policy adjustments.

Contribution

It provides an analysis of the EMU's institutional framework, economic foundations, and policy implications, especially regarding national sovereignty and asymmetric shock absorption.

Findings

EMU requires greater wage flexibility and fiscal policy role.

Full monetary union involves significant costs and institutional changes.

EMU impacts national economic policies, especially for France.

Abstract

Monetary integration has both costs and benefits. Europeans have a strong aversion to exchange rate instability. From this perspective, the EMS has shown its limits and full monetary union involving a single currency appears to be a necessity. This is the goal of the EMU project contained in the Maastricht Treaty. This paper examines the pertinent choices: independence of the Central Bank, budgetary discipline and economic policy coordination. Therefore, the implications of EMU for the economic policy of France will be examined. If the external force disappears, the public sector still cannot circumvent its solvency constraint. The instrument of national monetary policy will not be available so the absorption of asymmetric shocks will require greater wage flexibility and fiscal policy will play a greater role. The paper includes three parts. The first concerns the economic foundations of monetary union and the costs it entails. The second is devoted to the institutional arrangements under the Treaty of Maastricht. The third examines the consequences of monetary union for the economy and the economic policy of France.