EMU 1999 - DO WE NEED A DELAY OR INSTITUTIONAL REFORMS

During spring 1997 it has become clear that many of the countries who wish to join the EMU from the beginning of 1999 are going to face prob lems considering the convergence criteria of the Maastricht treaty. In many cases this is because the necessary actions to stabilise the eco nomies have been taking too late. It has therefore been argued that th e EMU should be delayed, at least for some of the potential participan ts. This article focuses on the question of how to reduce the public s ector debt, and introduces an analytical model that shows that additio nal time for stabilisation as such has no effects on a country's incen tives to stabilise earlier. The second part of the article studies the role of institutions in providing such incentives. It turns out, that by institutional arrangements, such as increasing political stability , making the central bank more independent or calling a referendum abo ut the EMU membership, it is possible to achieve earlier stabilisation .