We analyse the proposed "Stability Pact" for countries joining a European Monetary Union (EMU). In an EMU shortsighted governments fail to fully internalise the inflationary consequences of their debt policies. This results in excessive debt accumulation. Therefore, while in the absence of EMU...

This paper explores under what conditions a European Monetary Union (EMU) is an optimum currency area. The scope for an EMU increases with convergence of structural and fiscal policies, small money holdings, a conservative European Central Bank, and dependent national central banks. How national...

We show that, with benevolent policymakers and fiscal leadership, monetary unification reduces inflation, taxes and public spending. These disciplining effects of a monetary union, which rise with the number of fiscal players in the union, are likely to raise welfare. Joining an optimally...