By Francisco Torres, Francesco Giavazzi
This quantity analyzes the ecu Community's transition to monetary and fiscal union (EMU) within the mild of the agreements reached at Maastricht final yr. It derives from a convention held through the CEPR and the financial institution of Portugal, and comprises between its participants a few famous educational commentators on eu integration. the problems addressed within the quantity comprise: the connection among a standard forex and inflation convergence; the results of financial unification on Europe's more and more built-in monetary markets and monetary structures; and EMU's implications for the EC's long term development.
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Extra resources for Adjustment and Growth in the European Monetary Union
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. Inflation in the traded-goods sector converged, while inflation in the non-traded-goods sector did not; so an essential part of the story was the persistent rise in the relative price of non-tradables to tradables.
Particularly worrying was the prospect of a generally-worded clause which would allow individual countries to opt out of the commitment to EMU. This clause had the potential of quietly adjourning EMU sine die. Although originally inspired by the need to accommodate the difficulties of the United Kingdom in undertaking any such commitment at the time of signature of the revised Treaty, the opting-out clause turned out to hold attractions for politicians, particularly in national parliaments, in several other countries as well, including Germany.
No bail-out arrangements for such bodies can be invoked after that date and member states will endeavour in Stage II to avoid 'excessive 12 Niels Thygesen government deficits'. The reference values for defining the latter are indicated in a separate protocol as 3% for the ratio of the planned or actual government deficit to gross domestic product (GDP) and 60% for the ratio of government debt to GDP. We return to the likely effects of these requirements, and of the qualifications to them later.
Adjustment and Growth in the European Monetary Union by Francisco Torres, Francesco Giavazzi