Interest rates have to be raised because the effects of one member's
fiscal decisions are communicated to other members through the common
currency. The currency is the medium of exchange of information
regarding the present and future health of the economies involved.
Hence the notorious "EU Stability Pact", recently so flagrantly
abandoned in the face of German budget deficits.
Monetary unions which did not follow the path of fiscal rectitude are
no longer with us.
In an article I published in 1997 ("The History of Previous European
Currency Unions"), I identified five paramount lessons from the short
and brutish life of previous - now invariably defunct - monetary unions:
(A) To prevail, a monetary union must be founded by one or two
economically dominant countries ("economic locomotives"). Such driving
forces must be geopolitically important, maintain political solidarity
with other members, be willing to exercise their clout, and be
economically involved in (or even dependent on) the economies of the
other members.
(B) Central institutions must be set up to monitor and enforce
monetary, fiscal, and other economic policies, to coordinate activities
of the member states, to implement political and technical decisions,
to control the money aggregates and seigniorage (i.
Pages:
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128