Anders Vredin

EMU - A Swedish Perspective

Provides a comprehensive survey of the EMU project. Evaluates the main advantages and disadvantages of a single currency, integrating the economic and political aspects. This volume is a revised version of the report by the Swedish Government Commission on the EMU.

Fiscal Policy and the EMU

By fiscal policy we mean decisions on taxation and public expenditure. Two aspects are central in connection with the monetary union. The first concerns how large government budget deficits and debts can be accepted. The second aspect relates to the role of fiscal policy in stabilising aggregate demand. The Maastricht Treaty contains fiscal policy rules for the size of government budget deficits and debts in each country. These rules were amended in the Stability and Growth Pact. There is also an ongoing discussion on what demands for flexibility of fiscal policy that arise because of the loss of monetary policy autonomy in a currency union.

The Labour Market and the Monetary Union

Unemployment rose sharply in the EU countries between 1975 and 1985. Since then, it has remained high. Figure 8.1 illustrates this. In Sweden, open unemployment was very low until the start of the 1990s, but it then rose between 1991 and 1994 from about 2 to about 8 per cent. But the rise in open unemployment understates the deterioration in the labour-market situation in Sweden, as participation in labour-market programmes (labour-market training and job-creation schemes) also increased dramatically. In 1994, participation in various labour-market programmes amounted to 5.2 per cent of the labour force. Total unemployment (the sum of open unemployment and participation in labour-market programmes) thus amounted to as much as 13.2 per cent of the labour force in 1994. Figure 8.2 shows this. After a slight reduction in 1994–95, total unemployment rose again in 1996. The figure then amounted to 12.6 per cent of the labour force (8.1 per cent in open unemployment and 4.5 per cent in labour-market programmes).

Macroeconomic Disturbances and Monetary Policy

Two possible consequences of a European monetary union are often contrasted with each other. On one hand, membership of the union can mean higher credibility for low inflation. On the other, the loss of monetary policy independence means less freedom of action in stabilisation policy and thus a risk of larger fluctuations in output and employment.

Currencies and Exchange-Rate Systems — A Background

This chapter provides a theoretical and historical perspective on the choice of exchange-rate system. Section 3.1 discusses the various functions of a national currency. Section 3.2 describes the differences between various exchange-rate systems. A monetary union may be seen as an exchange-rate system with irrevocably fixed exchange rates among the member countries. Its opposite is a system of floating exchange rates, such as the one that currently applies between the dollar, the yen, and the German mark. Several other systems exist between these two extremes. Section 3.3 describes historical experiences of various exchange-rate systems. Even if the European monetary union is unique in a historical perspective, lessons from other international monetary arrangements can be useful in an analysis of the consequences of introducing a single currency. Section 3.4 summarises the most important conclusions.

The EMU Project

This chapter outlines the EMU project. Section 2.1 gives a brief description of how the plans for a monetary union within the EU have gradually evolved. Section 2.2 presents the basic structure of the monetary union, as laid down in the Maastricht Treaty. Section 2.3 explains the organisation of the European Central Bank and its tasks. Section 2.4 provides a survey of certain key EU institutions, which are of importance for understanding the EMU process. Finally, section 2.5 presents the “reference scenario” for how the transition to the single currency should take place in practice, as agreed in Madrid in December 1995.

The EMU, Democracy, and Sweden’s International Influence

The previous chapter discusses why the EMU could largely be regarded as a political project. The EMU, together with the common foreign and security policy (CFSP), belongs to the category of projects within the EU that is intended to create closer co-operation. It may be described as one of the core areas for future cooperation.

Exchange-Rate Arrangements between Participants in the Monetary Union and Non-Participants

The exchange-rate arrangements between participants in the monetary union and non-participants will be a central question. A substantial part of the preparatory work for the monetary union within the EU has concerned this issue.

The EMU and Social Efficiency

Social efficiency requires that the available resources are fully utilised and that the resources employed are used efficiently. This chapter focuses on the latter aspect. The question is to what extent the monetary union could contribute toward more efficient use of the resources employed.

The EMU as a Political Project

In many respects, the Economic and Monetary union is primarily a political project. It is the result of political negotiations among the most important members of the EU. It is being implemented by the creation of new political institutions. It will probably play a significant political role in the process of further EU integration. And monetary policy is a central element in economic policy.