European Monetary Union to break-up or see additions?

The EU set up is quite complex. There are 27 economies which are members of the European Union but only 15 have adopted Euro as their currency (see the list here). These 15 have abandoned their monetary policy and have given the same to one Central Bank – ECB. These 15 are said to members of European Monetary Union (EMU)

The current set of events has put entire EU in an interesting (and dangerous) twist. All economies under EU have been caught under severe economic and financial stress. This has divided the members into 2 lists:

  • The members of EMU (15 economies) are feeling the pressure of staying in the EMU. They can neither use monetary policy  to stimulate their economies nor use fiscal policy and provide fiscal stimulus as they are under the Stability and Growth pact. Read the superb articles by Simon Johnson and Martin Feldstein for some clarity on the matter. The list of economies under this are:

Austria Italy
Belgium Luxembourg
Cyprus Malta
Finland Netherlands
France Portugal
Germany Slovenia
Greece Spain
Ireland  
  • The other set that are not members of EMU for different reasons. For instance UK, Denmark and Sweden can become members but have not chosen to. The others need to work on the conditions in the growth and stability pact before they can become members. This group is feeling pressure to join EMU more than ever before mainly to protect their falling currencies. Euro currency has taken a beating but has still been much better shaped than others. The list of economies under this are:
    Bulgaria Lithuania
    Czech Republic Poland
    Denmark Romania
    Estonia Slovakia
    Hungary Sweden
    Latvia United Kingdom

    This list of joining Euro currency also includes economies that are not yet members of EU like Iceland and Russia.

As Feldstein and Johnson point out, EU is going to face a real crisis going ahead. It is going to test its policymakers to the hilt and would have to ensure that it does not break-up.

ECB has just completed 10 years (it was established on 1 June 1998) and Euro will complete 10 years old on Jan 1 2009 (started on Jan 1, 1999). It hasn’t faced a crisis like this in past 10 years and even asking members to join in might have been a lot easier. European policymakers also take a lot of pride in ECB (read Trichet’s interview) and its policies. The path ahead will be very tricky and testing.

Update:

Barry Eichengreen provides his excellent insights as well.

7 Responses to “European Monetary Union to break-up or see additions?”

  1. Denmark » The low-carbon diet - Toronto Star Says:

    […] European Monetary Union to break-up or see additions? « Mostly …For instance UK, Denmark and Sweden can become members but have not chosen to. The others need to work on the conditions in the growth and stability pact before they can become members. This group is feeling pressure to join EMU more … […]

  2. forexG Says:

    forexG…

    this is comprehensive, but this article seems to be too short and i’m sure that you can explain a little more. thanks…

  3. Derick ZFigueroa Says:

    Please…Determine the Latest number and members of the European Monetary Union….

  4. Derick S. Figueroa Says:

    I just need it cause it is my assignment…Please…”Determine the Latest number and members of the European Monetary Union…”.

  5. Slovakia adopts Euro currency « Mostly Economics Says:

    […] isn’t a surprise and had been announced well in advance. What is still a question is how many non-members join Euro as […]

  6. Useful Central bank Annual reports to read « Mostly Economics Says:

    […] Papademos, VP of ECB provides a summary) . The chapter on non-ECB EU members is quite interesting. They have faced quite severe pressures in this crisis.  So is the chapter on […]

  7. What if Denmark was part of Europe? « Mostly Economics Says:

    […] Second, West Europe which is part of EMU. The list is now of 16 countries. These are mostly advanced economies. […]

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