Robert M. Dunn Jr.

One Currency, but Not One Economy
Robert M. Dunn Jr.
professor of economics at George Washington University
New York Times, January 3, 2002

A fully operational European Monetary Union does not come, however, with a guarantee of success. There is one enormous problem: This union creates a single monetary policy for a group of quite different national economies that often experience divergent business-cycle patterns.

The patterns of economic ups and downs remain far more diverse in the European Monetary Union countries, and it is not clear that this will change soon. The designers of the monetary union thought that the imposition of a single monetary policy, combined with free trade among the members, would cause cyclical conditions to converge quickly, producing a unified group of economies that would closely resemble the United States economy. While this may eventually occur, so far evidence of such convergence remains rather scarce.

Even if the economies of the original European Monetary Union members become more similar in their cyclical behavior, it will take far longer for the convergence to include the new member nations expected to come in within the next 10 or 15 years. The chances for consensus on the Governing Council, however thin now, will become far more distant with more members representing divergent national economies. And the larger nations, like Germany, France and Italy, might well resent the power of representatives from much smaller nations to outvote them on monetary policy.

All of this does not mean that the European Monetary Union is likely to fail. But clearly the arrival of the euro as the standard currency momentous as it is for the average European consumer does not guarantee the union's success.

Other American Economists about EMU
"A Yankee Recipe for a EuroFed Omelet" By Robert F. Graboyes
Paul Krugman
Martin Feldstein
Milton Friedman
Lawrence Lindsey, the most influential member of President George W. Bush's economic team

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