THE ECONOMICS OF CONVERGENCE - TOWARDS MONETARY UNION IN EUROPE

In this paper, the literature on monetary integration has been surveye d in order to discover the economic rationale of the Maastricht conver gence requirements. The traditional theory of optimum currency areas i s silent on the need for Maastricht-type convergence requirements. Sim ilarly, the ''new'' view of monetary integration using credibility con cepts cannot easily be used to justify these convergence requirements. It is also argued that the dynamics of the convergence requirements w ill almost certainly lead to a ''Great Divide'' of the European Union. The paper concludes that less emphasis should be put on prior converg ence conditions and more on strengthening the functioning of the futur e monetary institutions in the Union.