A Survey of European Monetary Policy Issues: The E.M.S. and the Future of Maastricht

Abstract

This paper surveys the recent history of, and future possibilities for, European monetary coordination. It will begin with a discussion of the evolution of the European Monetary System (EMS) together with its current institutional structure, arguing that the EMS has been broadly successful at achieving its goals. Using the recent crisis in the EMS as a case study to illuminate potential problems in future European monetary policy, the issues of limited convergence in macro-economic variables, and asymmetric shocks affecting various European countries are highlighted. Finally, this essay will look toward the future by examining one proposal for European Monetary Union (EMU), the Maastricht Treaty. Analysis of the economic theory underlying currency unions and their application to Europe concludes that a monetary union, such as the one proposed in Maastricht, has numerous advantages. However, it will still have to contend with the same difficulties that the EMS has recently suffered. A multi-speed Europe is a likely solution to these problems.