Future of the Euro

Future of the Euro - THE FUTURE OF THE EURO AN OUTSIDERS...

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T HE F UTURE OF THE E URO :A N O UTSIDER S V IEW Va ´clav Klaus My perspective on the European Monetary Union and the future of the euro is based on a special combination of three elements: (1) my strong belief in the standard economic argumentation summa- rized in the well-known theory of optimum currency areas, (2) my citizenship in a small Central European country that has just joined the European Union and will at some point be a member of the EMU, and (3) my current political role that forces me to reveal my position on my country’s EMU membership. Basic Arguments I am convinced that the driving force behind European monetary unification has been strictly political, not economic. This often-used argument can be supported by my own experience based on numer- ous explicit conversations about it with key European political lead- ers. The economic arguments have been marginalized or taken only very superficially. The political ambition has been quite dominant. The euro has always been considered to be a useful instrument for the creation of the European political union. Many statements of that kind can be quoted. European President Romano Prodi, in an interview on CNN (January 1, 2002), explicitly stated: “The introduction of the euro is not economic at all. It is a completely political step. . . . The historical significance of the euro is to construct a bipolar economy in the world.” Two years before that, in the Financial Times (April 9,1999), he said: “The two pillars of the national state are the sword and the currency and we changed that.” Cato Journal , Vol. 24, Nos. 1–2 (Spring/Summer 2004). Copyright © Cato Institute. All rights reserved. Va ´clav Klaus is President of the Czech Republic. This article is an updated version of his closing address at the Cato Institute’s 21st Annual Monetary Conference, cosponsored with The Economist , November 20, 2003. 171
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Gerhard Schröeder, in March 1998, still an opposition leader, said that “the Euro is a sick premature infant, the result of an over-hasty monetary union.” After eight months as a German Chancellor, he made a different statement: “Our future begins on January 1, 1999. The euro is Europe’s key to the 21st century. The era of solo national fiscal and economic policy is over.” Spanish Prime Minister Felipé Gonzales said in May 1998: “The single currency is a decision of an essentially political character ....We need a united Europe. We must never forget that the euro is an instrument for this project.” I can quote indefinitely but the words will be almost the same. I believe that the largest part of the positive economic impact of European integration (as well as of EU enlargement) has come through the liberalization of trade and investment and has been al- ready obtained. The marginal contribution of further economic or noneconomic unification will be close to zero, if not negative. Because of that, the birth of the euro and the enlargement of the EU in May
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This note was uploaded on 04/26/2010 for the course ECON 45568 taught by Professor George during the Spring '10 term at Aarhus Universitet.

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Future of the Euro - THE FUTURE OF THE EURO AN OUTSIDERS...

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