The “Ins” and “Outs” of Euroland

The smooth appearance of euro notes and coins has triggered a valuable reconsideration of European monetary union’s ultimate aims. Two views – active since the process began in the late 1980’s – persist. The first claims that monetary union merely seeks to consolidate the Single Internal Market in goods and services; the second sees the euro as a mechanism to forge closer political union. These two motives are complementary, but the euro’s physical arrival has re-opened old divisions over its economic and political aspects and, to some extent, between the euro’s “ins” and “outs” among EU members.

The euro’s economic impact should not be underestimated. Although the biggest step in monetary union was taken when national currencies became subdivisions of the euro, the arrival of euro notes and coins delivers additional advantages.  Transparency of retail prices will invigorate competition.  Prices and inflation expectations will now tend to be guided more and more by a common inflation rate – kept low and stable by joint monetary policy – and not by erratic and divergent national prices.  A deepening of financial integration can also be expected. Finally, the irreversible nature of monetary unification will become ever more evident to citizens.

But will completion of monetary unification enhance Europe’s political union? To obtain a clearer picture, questions related to monetary union should be kept distinct from wider political issues.