Hello.
Historically, political union has been necessary for long-term,
successful monetary union. Basically, the reason for this has been
that it is very difficult for multiple governments, each pursuing
their own national interests, to coordinate fiscal and monetary
policies. As a result, various attempts at monetary union without
political union have usually failed. The implication for the Euro zone
is that close political cooperation, if not some degree of political
union, may be necessary if the Euro is to be a long-term success.
In his article, "History Shows EMU's Success May Depend on Political
Union," Dr Gerard Lyons go over the history of various attempts at
monetary union without political union. Lyons points out several
attempts at such an arrangement eventually collapsed, even after
working well for decades. Lyons does point out, though, there have
been successful cases where the countries involved were small and
their economies were very closely aligned. For more information, see
Dr Lyons' article, hosted by Euro-know.org:
http://www.euro-know.org/articles/rmu.html
Also see "Does the Euro Need Political Union to Survive?" This
article, written in March 2002, offers a great a "pro-con" look at
this issue. It's in PDF format, so the Adobe Acrobat reader is
required to view it. It's hosted by University of Wuerzburg:
http://www.wifak.uni-wuerzburg.de/vwl1/downloads/finanzplatzengl.pdf
If you don't have the Acrobat Reader, an html version is cached by
Google:
http://216.239.33.100/search?q=cache:XiigWzlHD9gC:www.wifak.uni-wuerzburg.de/vwl1/downloads/finanzplatzengl.pdf&hl=en&ie=UTF-8&client=googlet
Additionally, Professor Tim Congdon points out some specifc reasons
why political union is necessary for successful implementation of
monetary union:
-"monetary union requires agreement on the size of budget deficits"
-"monetary union requires agreement on the maturity profile of public
debt"
-"Distribution of seigniorage in multi-government monetary union
creates a tension between the ECB and member governments "
-"In a multi-government monetary union the distribution of the costs
of deposit protection between governments is uncertain"
-"In a multi-government monetary union, governments are unlikely to
reach agreement on fiscal policy"
-"Automatic fiscal transfers take place between regions to even out
cyclical shocks to regional stability. In a multi-government monetary
union, the absence of a unified fiscal policy prevents such
transfers."
-"In a multi-government monetary union the central bank is not
accountable to any single national legislature."
Source: Press release for Congdon's speech "EMU: Can monetary union
work without political union?"
http://www.ed.ac.uk/dhi/DHI%20Website/Press/Archive%20press%20releases/TIM%20CONGDON%20news%20release.htm
Also see the article, "Europe: common money – political union?",
hosted by the European Central Bank:
http://www.ecb.int/key/sp990920en.htm
search strategy: "monetary union", "without political union"
I hope this helps. |
Clarification of Answer by
juggler-ga
on
09 Dec 2002 09:15 PST
Hello.
NAFTA doesn't have monetary union. The United States of America,
Canada, and Mexico each has its own currency. Experts consider it
unlikely that the three countries will adopt monetary union.
See the article, "NAFTA partners unlikely to have common currency,"
from Associated Press, hosted by South Coast Today.
http://www.s-t.com/daily/01-99/01-19-99/a06bu034.htm
The CFA is a group of 14 countries in West and Central Africa. They do
have monetary union without political union. The CFA franc was
initially pegged at a fixed rate to the French franc, but is now tied
to the Euro since that has replaced the French franc. The CFA has
worked fairly well as a monetary union, but has not been perfect. In
1994, the CFA countries did have to do a devaluation of the currency.
In any case, the CFA experience is of limited value as a comparison
to the European Union because the economies of the CFA countries are
so much smaller than those of the Euro zone nations.
Sources:
Afrol.com: "African CFA currency into new future with Euro"
http://www.afrol.com/Categories/Economy_Develop/econ012_cfa_euro.htm
BBC: "Doubts grow over African monetary union"
http://news.bbc.co.uk/1/hi/business/1653865.stm
United Nations: "The CFA franc: new peg for a common currency"
http://www.un.org/ecosocdev/geninfo/afrec/subjindx/124euro3.htm
BlackElectorate.com: "The CFA Franc and Africa's Monetary Dependency"
http://www.blackelectorate.com/articles.asp?ID=86
I hope this helps.
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