EMU would be an economic liability. A single currency would cause at most small trade and investment gains but would raise average cyclical unemployment and would probably raise inflation, perpetuate structural unemployment, and increase the risk of protectionism. EMU is nevertheless being pursued in order to create a political union. Fundamental disagreements among member states about economic policies, foreign and military policies, and the sharing of political power are likely to create future intra-European conflicts. A united Europe would be a formidable participant in the 21st century's global balance of power, with uncertain consequences for world stability and peace.
*Published:
Journal of Economic Perspectives, Vol. 11, no. 4 (Fall 1997): 23-42. Published as "U.S. Budget Deficits and the European Economies: Resolvingthe Political Economy Puzzle", American Economic Review, Vol. 76, no. 2(1986): 342-346.
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