Euro zone : a successful monetary union needs to be part of a fiscal and political union

Abstract

After a long period of convergence in the early and mid-1990s, experiences demonstrate that the euro region financial system had started diverging. As a consequence, the common monetary policy and its non-coordination with fiscal authorities are becoming a severe problem for several countries. In this project, chapter I covers the general overview of the project. Chapter II focuses on the historical background of the euro zone and its engagement in a monetary union; and it examines the set of economic criteria that each nation should adopt to maintain this unification. Chapter III discusses the different school of thoughts regarding the European monetary union and its effectiveness. Chapter IV studies and analyzes the problem facing this union. Much of the problems have to do with asymmetric, divergent developments within the Eurozone; some of these divergencies are at a fiscal policy level while others have a political origin; i.e. many economic decisions continue to be made at the national level. Finally, chapter IV concludes with personal suggestions towards having a fiscal and political unification for a monetary union to be efficient.