How will EMU affect inflation and unemployment in Europe?

This paper explores how European Monetary Union will change the wage settin g behavior of national labor unions. We derive the impact of national infla tion aversion and labor militancy on the performance of national labor mark ets under different monetary arrangements. A common central bank raises inf lation and unemployment if it acts as conservatively as national central ba nks. However, unemployment falls in countries that previously tied their mo netary policy to the Bundesbank. We also examine the composition of EMU and the influence of national labor market legislation.