INTRODUCTION

On Jan. 1, 1999 11 European countries united in the European Monetary Union. The new single currency bloc includes almost 300 million consumers and creates the second-largest economy in the world. How will this new union affect the conduct of macroeconomic policymaking among member countries?

PROCESS

Use the following resources and statements to answer the questions below:

  • The EMU has a central bank and central monetary policymaking authority. However, fiscal policy is being conducted independently among member nations. There will be one interest rate, but 11 national budgets. Contrast this situation with the U.S. economic system: central monetary AND fiscal policymaking authority.

  • The ratio of public debt to GDP for member nations must be 60 percent or less or the ratio of public debt to GDP must be sufficiently diminishing and approaching the reference value at a satisfactory pace.

  • Go to the map at "Where the EU Stands on the Euro" . Look at the unemployment rates from country to country.

    1. Which countries are participating in the European Monetary Union (EMU)?

    2. What are some of the benefits of having a single currency?

    3. Why were some experts skeptical about the forecasted success of the EMU?

    4. What problems do you foresee for countries who may experience macroeconomic shocks?

    5. How many member nations have room for expansionary fiscal policies?

    6. Which of the member nations would likely want to pursue an expansionary fiscal policy?

    7. If the country pursues expansionary fiscal policy without an accommodating monetary policy, what is a likely consequence?