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18 Mar 1999
9789264172609 (PDF) ;9789264170278(print)

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The launch of the euro reinforces the foundations for unprecedented economic integration encompassing 11 countries, 16 per cent of world GDP and 290 million people. For the first time, the OECD has studied the euro-area as a fully-fledged economic entity and has analysed the intensive preparations that led to the single currency, as well as the economic issues raised by its introduction. Despite the macroeconomic convergence already achieved and the institutional framework that has been established, the fact is that many uncertainties remain. An approach to co-ordinating monetary and budgetary policies that is up to the issues at stake has still to be fully defined. And the euro area's ability to absorb economic shocks must be assessed and strengthened. In this respect it is vital for labour markets to become more flexible and adaptable if they are to compensate for the loss of national monetary autonomy which EMU implies and if adjustment is not to be at the expense of jobs. A special chapter discusses the obstacles to geographic labour mobility and the rigidity of wage setting mechanisms. These are some of the challenges that must be faced in the years to come, and this study discusses them in the light of the most penetrating and informative analysis today’s economists can provide. It does not prescribe set remedies, but drawing on analyses and figures never published before, attempts to identify the best policies for ensuring the success of the monetary union. This is a complex study that takes a hard look at the issues and will be of great interest to anyone wishing to understand the economic mechanisms at work.

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Table of Contents

I. The Launch of the Euro: Economic Conditions and Prospects

-The costs and benefits of economic union
-Economic conditions of the euro area
-Economic prospects are favourable, but the risks are large
II. Macroeconomic Policies
-Monetary policy: ensuring price stability
-Fiscal policy: complying with the Stability and Growth Pact
-Tax competition
-The macroeconomic policy mix and policy coordination
III. Susceptibility to Shocks
-Assessing the susceptibility to shock
IV. Adaptability to Shocks: The Role of Labour Markets
-Raising the adaptability to shocks
-Overcoming obstacles to labour mobility and wage flexibility
-Wage and income policies
Glossary of Acronyms
Annex I. The position of EU "outs" towards joining the Monetary Union
Annex II. A comprehensive data set for the euro area
Annex III. Measuring asymmetric economic shocks
Annex IV. Cluster analysis and EU convergence
Annex V. Regional data

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