George S. Tavlas
Europe’s single-currency undertaking is perhaps the boldest at-
tempt ever in which a large and diverse group of sovereign states has
attempted to reap the efficiency gains of using a common currency.
On January 1, 1999, 11 European Union countries initiated the Eu-
ropean Monetary Union by adopting a common currency, the euro,
and assigning the formulation of monetary policy to the Governing
Council of the European Central Bank, based in Frankfurt. Two years
later, Greece became the 12th member of the EMU. In May 2004, 10
additional countries joined the EU and eventually will become mem-
bers of the EMU.
The EMU is the culmination of a process that
began in the aftermath of World War II with a range of narrow
economic-cooperation agreements, leading to the creation of a com-
mon internal market, and, now, to a common central bank and a
The decision whether to join the EMU is part of a broad economic
and political calculus about the advantages and disadvantages of par-
ticipation in a monetary union. What are the benefits and costs of
entering the eurozone? This article addresses that question.
Exchange Rate Regimes and Globalization
In recent years, a large part of the economics profession appears to
have become converted to “the hypothesis of the vanishing middle.”
, Vol. 24, Nos. 1–2 (Spring/Summer 2004). Copyright © Cato Institute. All
George S. Tavlas is Research Director at the Bank of Greece and Alternate to the Governor
of the Bank of Greece on the European Central Bank’s Governing Council. He thanks Harris
Dellas, Francesco Mongelli, and Michael Ulan for helpful comments. The views expressed are
those of the author and should not be interpreted as those of the Bank of Greece.
The 10 accession countries are the Czech Republic, Cyprus, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, Slovakia, and Slovenia. Three countries, Denmark, Sweden, and
the United Kingdom, are members of the EU, but have not adopted the euro.