Difficulties with European Monetary Union

It is now two years since the authors of the All Saints’ Day Manifesto (Basevi et al., 1975) advanced their proposals for European Monetary Union. The Manifesto itself, and subsequent writings by at least one of its authors (Parkin, 1976) make it clear that they envisage themselves as planning, not for some distant time in the future, but for the present. Their scheme is one that they would have implemented immediately in 1975, and presumably one that they would implement now had they the power to do so.1 Given the renewal of interest within the EEC Commission in the goal of monetary union, it is of particular importance that the goal itself, and the methods that have been proposed to achieve it, be subject to critical scrutiny and debate. This paper seeks to contribute to such a debate. The Maifesto’s authors have claimed that there is no case to be made against immediately moving towards European Monetary Union (EMU). It is my contention that there are serious problems involved in such a move, particularly an immediate one. To proceed towards EMU without a thorough analysis of these problems is to risk its failure. Whether one opposes or supports EMU, one can agree that a botched attempt at achieving it is something to be avoided. The arguments that follow stop far short of being a blanket condemnation of all aspects of the case put by the proponents of EMU. Rather they are advanced in the hope of tempering political enthusiasm for EMU by a little economic realism.