By Francisco Torres, Francesco Giavazzi
This quantity analyzes the eu Community's transition to monetary and financial union (EMU) within the gentle of the agreements reached at Maastricht final yr. It derives from a convention held by means of the CEPR and the financial institution of Portugal, and comprises between its individuals a few famous educational commentators on eu integration. the problems addressed within the quantity comprise: the connection among a typical foreign money and inflation convergence; the results of economic unification on Europe's more and more built-in monetary markets and monetary platforms; and EMU's implications for the EC's long term progress.
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A revaluation of the Deutschmark against the other ERM currencies at the moment of German unification might have met this criterion: German reunification is no everyday occurrence. Could this have prevented the crisis of 1992? Sergio Rebelo, in Chapter 5, examines, using data for Portugal, the extent to which the slow convergence of inflation could be the result of real forces that produce an appreciation in the relative price of nontradables. Portugal's overall inflation rate fell by less than two percentage points towards the average of the exchange rate mechanism after the escudo began to shadow the ERM narrow band in 1990.
4 A governmental deficit is not excessive, as already noted, if the deficit/GDP ratio is below 3% and the debt/GDP ratio is, at most, 60%, or if substantial and continuous progress has been made in approaching a level close to these reference values (Article 104 c). The 16 Niels Thygesen reports will, finally, 'take account of the development of the ECU, the results of the integration of markets, the situation and development of the balance of payments on current accounts and an examination of the developments of unit labour costs and other price indices'.
On the other hand, the EC may, from 1995, have 2-4 additional member states; Austria, Finland and Sweden have already applied while Norway, and possibly Switzerland may do so in the near future. At least some of these new members are likely to fulfil the necessary conditions. Thus, expansion of membership could make it easier to find a majority qualified for full EMU in the second half of the decade; widening would in fact accelerate deepening. While the two nominal conditions (inflation and interest rates) may be regarded as fairly lenient, particularly if the EMS continues to operate without realignments, the budgetary indicators, taken at face value, are more demanding even if inflation is sharply reduced, hence pushing the deficit down.
Adjustment and Growth in the European Monetary Union by Francisco Torres, Francesco Giavazzi