For many people, in favour of the EMU and the sceptics of EMU alike, the single currency points is inescapably part of the political union. Looking at past history, monetary unions linking independent states of dissimilar size and power (like that of Belgium and Luxembourg today) have not been uncommon. But there has so far never been one enduring monetary union of strong independent states. This, and the commitment of a number of key EU member governments to further political integration, suggests that over time EMU could indeed favour federalism. Yet in theory, there seems to be no compelling economic reason why this should be so. The decision of the 'political union' remains essentially a matter of political choice. The crucial point is that the EU is already a federation, albeit a loose one.
Adopting the single currency means, by definition, surrendering national control over monetary policy, but no further loss of national sovereignty would necessarily be bound to follow. Europe's government may well choose that course. Or they may choose otherwise. Participating in EMU does not pre-ordain that decision. The UK has three possible strategies for EMU: decide to join in a few years time, wait and see, according to the approach adopted by the Major's government, or finally decide not to join.
[...] These reservations probably apply also to those countries that have pegged their currency. Integration may also bring convergence. Indeed, with growing integration among Europe's economies, the significance of differential shocks may well diminish. Moreover, differences in financial structures are largely a product of different economic policies and history, and with time these will dwindle. And there are signs that the British and Continental economies may be diverging, rather than converging, as the proponents had hoped. The British housing market has been a beacon of strength, and soaring home prices, opponents argue, demonstrate the need for Britain to maintain an independent monetary policy. [...]
[...] If this trend predominates, the EU may move towards an inner core of and an outer periphery of Some use this argument in favor of UK participation; other would also use it to reject integration. The fact that the UK negotiated an opt-out from the European single currency is widely assumed to mean that the monetary union obligations set out in the Maastricht Treaty are of little importance unless the UK opts to join the single currency. Miles, D. (1997). Temperton, P. ed. The Euro. Chichester: John Wiley & Sons Ltd, pp. 104-5 Johnson, C. (1998) in Duff, A. ed. Understanding the Euro. [...]
[...] Each country joining the single European currency must meet the convergence criteria. This requires at borrowing deficit under of the country's GDP. But in Great Britain, the borrowing deficit is and the reduction of this figure would require public expenditure to be cut. The public would definitely not appreciate these cuts. Sceptics argue that a single monetary policy cannot deal with the differences, divergences and cyclical variations in the European economies. National currencies provide an adjustment mechanism, and allow governments to use interest rates to respond to events. [...]
[...] Yet in theory there seems no compelling economic reason why this should be so. The extent of “political union” remains essentially a matter of political choice. The crucial point is that the EU is already a federation, albeit a loose one. Adopting the single currency means, by definition, surrendering national control over monetary policy, but no further loss of national sovereignty would necessarily be bound to follow. Europe's governments may well choose that course. Or they may choose otherwise. Participating in EMU does not pre-ordain that decision. [...]
[...] London: Federal Trust P Ibid., p Currie, D. (1997). The pros and cons of EMU. [...]
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