European monetary unification: A tour d'horizon

This article takes stock of the literature and debate over European monetar y unification. In contrast to other papers, where it is argued that the iss ues and prospects remain shrouded in uncertainty, I argue that in a number of important areas, a reasonable degree of consensus now exists, as the res ult of a decade of scholarship, The subsequent stock-taking concentrates on areas where significant questions remain, starting with the implications o f surrendering the exchange rate and an independent national monetary polic y as instruments of adjustment the conduct of fiscal policy under the Exces sive Deficit Procedure and the Stability Pact; and how quickly the European union is likely to develop an EU-wide system of fiscal federalism to accom pany its monetary union. Turning from fiscal to monetary issues, I ask whet her the European Central Bank (ECB) will be as inflation averse as the Bund esbank, what exchange-rate policy the ECB will pursue, and whether the euro will be a leading reserve currency. I conclude with what may be the most c ontentious issue of all, namely whether Europe's monetary union could colla pse after it begins.