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The Economics of Monetary Integration, by Paul De Grauwe. New York: The Oxford University Press, 1997. Pp. 228. $24.95 (softcover).
Combining the old literature on monetary integration developed in the 1960s and early 1970s with the new literature of the mid-1980s, Paul De Grauwe's The Economics of Monetary Integration offers new insights into the policy considerations surrounding monetary integration in Europe. Following the 1989 Delors Report, as well as the Maastricht treaty, the debate over how to achieve monetary union in Europe intensified.
Seeking to explore the idea of an optimal monetary area, part one analyzes the economic costs and benefits of a unified currency system. A complete monetary union involves a system in which countries abolish their national currencies and implement a common currency. Under such a system, a national central bank either ceases to exist or loses all power. The participating country is denied the ability to change the price of its currency or to set the amount of money in circulation. Under the theory of optimum currency areas, economic costs of such a full integration are weighed against economic benefits with the cost analysis favored.
Countries differ economically in many areas, including shifts in demand, preferences regarding inflation and unemployment, labor market institutions, growth rates, and fiscal systems. These differences will not disappear in a monetary union. A country's ability to vary exchange rates is a powerful instrument to help eliminate what the...