Destructive Diversity, Inflationary Convergence and the Inflation Criterion: The Way to EMU Reconsidered |
Michael Berlemann |
Dresden University of Technology CESifo |
Copyright ©2006 Journal of Economic Integration |
ABSTRACT |
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Since the signing of the Maastricht Treaty, there has been an intensive discussion whether the convergence criteria incorporated into the contract were appropriate to prepare the EU-member-countries for European Monetary Union. We argue that at least inflationary convergence was not a necessary precondition for EMU. This paper aims at analyzing the effects of the inflation criterion with regard to its possible influence on welfare of the EU-member-states during the transitional phase (stage II). It is shown that the inflation criterion can be interpreted as a component of an incentive compatible contract; insofar it has contributed to a decrease in inflation bias during stage II of EMU but played no important role with respect to stage III. JEL classification: E58, F15, F33 |
Keywords:
Convergence criteria | Time consistency | Incentive compatible Contracts | EMU
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