By Francisco Torres, Francesco Giavazzi
This quantity analyzes the eu Community's transition to financial and financial union (EMU) within the gentle of the agreements reached at Maastricht final yr. It derives from a convention held through the CEPR and the financial institution of Portugal, and contains between its members a few famous educational commentators on eu integration. the problems addressed within the quantity contain: 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 platforms; and EMU's implications for the EC's long term development.
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Additional info for Adjustment and Growth in the European Monetary Union
This modified procedure will ensure that full EMU starts, even if only a minority of member states are ready for it. That will provide an additional incentive for countries on the borderline for the 1996 (or 1998) decision to bring their credentials beyond argument. The procedure creates a powerful incentive: either a country looks like qualifying, hence triggering the favourable expectational effects associated with EMU on inflation and interest rates - themselves criteria for entry - or it risks additional divergence by looking unlikely to make it.
Overdraft facilities in national central banks or the possibility of selling debt instruments directly to them will be closed to national government and other public authorities (except publicly-owned credit institutions). 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.
The budgetary criteria remain tough even in this liberal interpretation and might still constitute the 'no-entry clause' advocated by some countries and analysed in the more academic literature, notably by Giovannini and Spaventa (1991). On the other hand, as argued above, they are unlikely to be applied mechanically to bar countries which have long observed the rigid discipline of the normal margins in the EMS, from entry into the final stage. The Maastricht criteria may have been set up primarily to create some uncertainty about participation and to set up strong incentives for countries with potentially 'excessive deficits' to undertake consolidation at a time when the more formal sanctions, which will replace them in the final stage, are not yet operative.
Adjustment and Growth in the European Monetary Union by Francisco Torres, Francesco Giavazzi