POLI%20243%20notes%20March%2026 - March 26, 2009 POLI 243

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March 26, 2009 POLI 243 Germany’s Role in European Monetary Union Reluctant Leadership within Europe *Why did Germany take on the leadership role? Issues for Germany Concerning Monetary Union - Costs of adjustment related to process o There are costs related to everyone moving towards monetary union – everyone will have to agree on what balance of Mundell-Fleming conditions to have 1) Do you build institutions first, then have them help members attain compliance with rules? 2) Or should states prove they can comply with the rules, and only then be allowed to enter? (have to live up to a certain standard before they’re let in) - Germany’s Preferences: o Unanimous votes Voting on new members joining by member countries – basically they want veto power everyone else was arguing for majority-wins style voting; Germany is worried that this will let in too many smaller, less reliable countries, which will then vote to allow in others, and so on o Institutions to discipline Must have a system to force countries to follow the monetary regime (i.e. must be able to punish countries that run large deficits, have the ability to kick people out, etc.) o However, Germany was willing to make side payments In order to get others to agree to their other preferences, they would make side offers (like funding for side projects, etc.) Explaining Germany’s Role - At the time, it looked like Germany had a lot to lose, and little to gain from a monetary policy like this; their currency was well established, had low historical inflation based on good rep of central bank, trade position was well supported, etc. o
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This note was uploaded on 04/28/2011 for the course POLI 243 taught by Professor Markbrawley during the Spring '09 term at McGill.

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POLI%20243%20notes%20March%2026 - March 26, 2009 POLI 243

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