WHY EUROPEAN UNION IS NOT AN OPTIMAL CURRENCY AREA: THE LIMITS OF INTEGRATION

Year 2006, Volume: 6 Issue: 2, 59 - 72, 01.10.2006

Hüseyin Mualla Yüceol

Abstract

Currency regimes and their effects have been studied widely in both developed and developing countries. This study discusses what European monetary unification is telling about the interpretation of the optimum currency area (OCA) in the framework of classical contributions to the literature. The study concludes that although several weaknesses of the analytical framework of the early OCA theory have been modified and some of the OCA properties have technically sophisticated, there is no unified theory in this area. The experiment of Europe with economic and monetary union intensify this conviction. Moreover, it concludes that a single currency advances members’ living standarts when they have similar economic structures and international trading patterns, but proves detrimental when these diverge. Therefore, it can be said that the enlargement process with the new candidate
countries including Turkey puts forward both
opportunities and threats for the future of
European Union in terms of achieving a currency
union.

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• Indicators, Available from: http://www.worldbank.org. APPENDIX Belgium Nominal Indicators Inflation Exchange 73 1974-85 1986-90 1991-95 1996 1997 1998 7 7.4 2.3 2.7 2.3 58 43.18 43.31 41.30 39.30 2.6 7 120.1 125.7 131.3 126.9 5 6 1.3 53 40.62 2.1 2 118.1 8 1
• Long term interest rates (%) Reel Indicators GDP 7.9 7.1 5.8 3.2 6 5 1 5 9 1.8 3.0 1.2 1.5 * 0 7.7 8.7 8.5 9.8 7 2.8 Per Capita Nominal GNP ($), 23820 24574 Unemployment (%) 5 8.5 Denmark Nominal Indicators Inflation Exchange Rates
• Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 73 1974-85 1986-90 1991-95 1996 1997 1998 6 7 6 7 94 9 1 2 8 0 2.4 0.7 7 1 5 4 0 8 7 2 2 3 2.0 1.4 2.0 2.7 2.9 1.7 * 0 6.4 6.4 8.6 6.9 6.1 5.4
• Per Capita Nominal GNP ($) Unemployment 32179 33045 (%) Germany Nominal Indicators Inflation Exchange Rate
• Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 73 1974-85 1986-90 1991-95 1996 1997 1998 06 4 3 41.7 43.8 58.0 60.4 61.3 61.2 1 2.9 5 08 8 6 08 4 3 1.7 3.4 2.1 1.4 2.2 2.6 * 7 4.2 5.9 7.3 8.8 9.7 9.8
• Per Capita Nominal GNP ($) Unemployment 25470 26226 (%) Greece Nominal Indicators Inflation Exchange Rate
• Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 73 1974-85 1986-90 1991-95 1996 1997 1998 5 17 : 1 51.6 90.1 110.1 111.6 : 37 11.7 7.5 4.0 7 : : 6 : : : 7 2.5 1.9 1.1 2.6 3.5 3.8 * 5 3.8 6.6 8.3 9.6 9.5 9.2
• Per Capita Nominal GNP ($) Unemployment 11438 11456 (%) France Nominal Indicators Inflation Exchange Rate
• Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 73 1974-85 1986-90 1991-95 1996 1997 1998 4 36 4 : 0 5 7 7 0 1 4 2.2 3.2 1.1 1.5 2.4 3.0 * 0 6.4 9.7 11.1 12.4
• Per Capita Nominal GNP ($) Unemployment 23789 24497 (%) 5 9 Ireland Nominal Indicators Inflation Exchange Rate
• Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 73 1974-85 1986-90 1991-95 1996 1997 1998 41 3.7 2 : 6 2 5 3 3 2 4 3.8 4.7 5.9 8.6 10.0 * 6 7
• Per Capita Nominal GNP ($) Unemployment (%) Italy Nominal Indicators Inflation Exchange Rate Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 6 5 5 6 2 4 73 1974-85 1986-90 1991-95 1996 1997 1998 9 70 3.1 3 82.3 98.0 124.2 124.0 0 7 9 69 1505.32 1803.02 1959 9.6 3 4 3 1944 2.7 6 7 3 1 3 0 2 3 2.7 3.0 1.1 0.7 1.5 2.4 * 0 7.0 9.6 10.3 12.0
• Per Capita Nominal GNP ($) Unemployment 19913 20448 (%) 1 0 Luxemburg Nominal Indicators Inflation Exchange Rate
• Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 73 1974-85 1986-90 1991-95 1996 1997 1998 0 7.4 2.4 3.0 1.6 1.4 1.6 04 50 18 22 : 5 13.0 4.7 5.9 6.6 6.7 7.1 : : 0 1.8 6.4 5.4 3.0 4.1 4.4 * 0 1.7 2.1 2.5 3.3 3.7 3.9
• Per Capita Nominal GNP ($) Unemployment 37346 38639 (%) Netherlands Nominal Indicators Inflation Exchange Rate
• Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 73 1974-85 1986-90 1991-95 1996 1997 1998 1 5 7 9 3 2 3 0.7 : 9 4 1 4 2 6 0 9 1.9 3.1 2.1 3.3 3.3 3.7 1 7.1 7.4 6.4 6.3 5.3 4.4
• Per Capita Nominal GNP ($) Unemployment 23280 24225 (%) Portugal Nominal Indicators Inflation Exchange Rate 73 1974-85 1986-90 1991-95 1996 1997 1998 9 30 4 94 51 86 76 198.59 201.7
• Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 5 : 4 61.9 65.3 65.9 65.0 62.0 60.0 5.4 : 3.2 2.5 2.2 : 9 2.2 5.0 1.4 3.6 3.7 4.0 * 5 6.9 6.1 5.6 7.3 6.4 6.2 Per Capita Nominal GNP ($), 10184 10580 Unemployment (%) Spain Nominal Indicators Inflation Exchange Rate
• Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 73 1974-85 1986-90 1991-95 1996 1997 1998 5 47 : 6 1 43.7 44.8 65.5 70.1 68.8 67.4 : 5.7 2.8 3.7 4.6 2.6 2.2 : 2 1.9 4.5 1.3 2.3 3.4 3.6 *
• Per Capita Nominal GNP ($) Unemployment (%) United Kingdom Nominal Indicators Inflation Exchange Rate Net Lending (+) or net borrowing (-) General Government Gross Debt Long term interest rates (%) Reel Indicators GDP 13530 14088 73 1974-85 1986-90 1991-95 1996 1997 1998 8 41 0.3 1 3 53.8 35.5 53.9 54.7 53.4 52.3 76 5.8 4.8 1.9 0.6 3.6 0.7 1 1.4 3.3 1.3 2.3 3.5 1.9 * 9 6.9 9.0 9.5 8.2 7.1 6.5
• Per Capita Nominal GNP ($) Unemployment 21740 23056 (%) * For 1966-1973 Nominal Indicators
• Inflation (price deflator private consumption) Exchange Rates (annual average national currency per ecu) Net Lending (+) or net borrowing (-) of general government (% of GDP) General Government Gross Debt End of period (% of GDP) Long term interest rates (%) (Government bond yield) Reel Indicators Gross Domestic Product (at 1990 prices)
• Per Capita Nominal GNP ($), After 1991 Per Capita Nominal GDP ($) Unemployment (%)