Will European monetary union happen?

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And if so, Who decides whether it starts and who joins? Can the countries seeking to join meet the entry requirements?

-- (), February 06, 1997


EMU? Probably, but...

In the spring of 1998 European Union heads of governments will decide at a summit whether Emu should proceed. This will occur after the European Monetary Institute, the forerunner of a European Central Bank, and the European Commission, have judged which countries meet the single currency convergence criteria, which are that:

Government deficit and debts must be no more than 3 per cent and 60 per cent of gross domestic product respectively;

Inflation rates and long-term interest rates be within 1.5 percentage points and 2 percentage points of the average of the three countries with lowest inflation;

The currency has stayed within the Exchange Rate Mechanism bands for two years.

Countries must fulfil these criteria in 1997 to qualify as founder members of Emu on January 1, 1999. Countries must also have an independent central bank.

Will any country actually manage that? Many will have difficulties. But the criteria can be interpreted flexibly: the Maastricht treaty indicates that debts that are falling towards the target may be acceptable. Deficits close to the 3 per cent ratio may also be accepted.

-- Ian Giddy (igiddy@stern.nyu.edu), February 06, 1997.

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