Could a Single Currency Lead to Higher Unemployment?

Abstract

It is quite frequently argued that the introduction of a single European currency will condemn parts of Europe to higher levels of unemploy-ment. This is because, with a single currency, countries will no longer be free to devalue their currencies in order to maintain their international competitiveness. Consequently the level of economic activity will be lower and the level of unemployment higher than it would otherwise be. This argument has been used not only by those who are critical of the whole idea of a single currency, but also by those who support the adoption of a single currency in principle but argue that the ‘nominal’ convergence criteria contained in the Maastricht Treaty need to be supplemented by ‘real’ convergence criteria, and even by single currency enthusiasts who wish to see increased monetary transfers between the member states of the European Union.¹