English, Article edition: The Economic Consequences of a Large EMU – Results of Macroeconomic Model Simulations Breuss, Fritz

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Physical Description
  • article
Language
  • English

Edition details

Title
  • The Economic Consequences of a Large EMU – Results of Macroeconomic Model Simulations
Author
  • Breuss, Fritz
Physical Description
  • article
Notes
  • Recent economic forecasts increase the probability that firstly, the EMU can start as planned on January 1, 1999 and secondly, that it will start with a large group of countries. The economic implications of the artificially unification of "hard-currency" and "soft-currency" countries are analysed by means of macroeconomic model simulations. The results of a large "non-optimal" EMU are as expected. On the one hand, there are positive income effects for all countries – although unevenly distributed over the participants – on the other hand, the internal (inflation) and external (value of the Euro vis-à-vis the Dollar) stability are at risk. The "hard-currency" group will be the major winner (in terms of real GDP and employment), whereas the "soft-currency" group has to carry the adjustment costs to a regime of fixed exchange rates (Euro) which results in slower growth, decline in employment and a deterioration of their budgetary position. The necessary convergence of prices and interest rates leads to an increase (decrease) of inflation and interest rates in the "hard-currency" countries ("soft-currency" countries). If the EMU will start with a large group there will be a tendency to devalue the Euro against the Dollar. As a consequence of the uneven economic performance of a large (non-optimal) EMU I would suggest to start the EMU with a core group of "hard-currency" countries. After this mini EMU succeeded the other Member States could join the EMU.
  • EMU; model simulations; Euro; economics
  • RePEc:erp:eiopxx:p0011
Language
  • English
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