MONETARY UNION AND CONVERGENCE ECONOMICS

We survey the literature on monetary integration to discover the econo mic rationale for the Maastricht convergence criteria. We conclude tha t the nominal convergence criteria (inflation, interest rates, no deva luation) have very little theoretical foundation. A stronger theoretic al case can be made for the requirement of prior reduction of the gove rnment debt. We also argue that the Maastricht convergence requirement s will almost certainly lead to a 'Great Divide' in the European Union . We therefore conclude that less emphasis should be put on prior conv ergence conditions and more on strengthening the functioning of the fu ture monetary institutions of the Union.