Preconditions for the Success Of

The project of a new, common currency in Europe has raised a tremendous wave of emotions. This can mainly be explained by the uncertain socio-economic consequences of this institutional innovation. The European Monetary Union (EMU) should be regarded more as a political project and not so much as an economic project. That is, the idea of EMU was not derived straightforwardly from an approach based on solid economics. Instead the EMU project, though partially justifiable in terms of modern economic theories, was grounded on the general hopes of politicians, hopes that mainly referred to avoiding the assumed costs of exchange rate fluctuations inside the EU, improving the international competitiveness of the EMU countries or companies, fostering economic development and convergence in living standards among the EMU countries, and ensuring political stability and peace in Europe. These hopes, however, were accompanied by fears of academic researchers in particular that mainly referred to an increase in inflation and lasting one-sided transfer payments, and to the danger of inducing economic divergence within EMU. These fears have led to the establishment of various institutional precautions in the so-called Maastricht Treaty and in the subsequent "Stability Pact".