Why Was the EMU Established? Different Perspectives

Abstract

The European Monetary Union suggested in the late 1980s was considered by the euro-monetarist as a political project to promote further economic integration and to prevent Germany from becoming the dominant European power after re-unification. The institutions surrounding the European Monetary Union were designed according to the Euro-monetarists’ theory of how to create an Optimal Currency Area (OCA) recommended by the Delors Commission (Report on economic and monetary union in the European community, Office for Official Publications of the EC, Luxemburg, 1989). Hence, politics overruled any realist objection by defining loose convergence criteria making too many countries eligible for the common currency and by disregarding balance-of-payments imbalances. Furthermore, the unilateral focus on the public sector deficit without viewing private sector imbalances underestimated the structural differences between the potential member states. Had a Euro-realist analytical framework been employed, a number of these macroeconomic imbalances would have been addressed at an earlier stage with less devastating consequences.