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This chapter first briefly traces the history of European monetary integration. It then examines: the politics and economics of the Maastricht Treaty and Economic and Monetary Union/European Monetary Union (EMU); the convergence criteria and the transition to the final stage; and the institutional structure provided for in the treaty. It concludes with the main outstanding issues, drawing on the experience of the first two years of life with the euro, and the prospects for the future.

This chapter analyses the winners and losers in European integration. Integration has been perceived as a positive-sum game, involving the joint management of economic interdependence for increasing open economies, the intermeshing and interlocking of sovereign political entities as a means of consolidating peace and security on a continent with a long history of national rivalries and bloody conflict, and the strengthening of democratic institutions. However, these have gradually disappeared with the worsening economic environment, deepening integration, and increasing inability of the nation-state to redistribute internally. The division between winners and losers has become a more important issue within countries rather than between countries.

Seeks to understand why some member‐states of the European Community attempted, with eventual success, to extend supranational authority in the domain of monetary and exchange‐rate policy and to anticipate some of the probable consequences of such extension. It begins by analysing the beliefs that originally underpinned the attempt, concerning the perceived need to resolve the community tensions inherent in independent economic policy‐making. It then considers the economic, political and institutional dilemmas, and uncertainties likely to confront member‐states as economic integration proceeds. Concentrating on the issues of low growth and high unemployment, it assesses how far European Monetary Union is likely to provide a remedy, and whether it will be necessary or desirable to create a counterweight to the authority of the European Central Bank, and to create new supranational organizations in the domain of European macroeconomic governance.

This is the first of three chapters on salient EU policy innovations and expansion between 2000 and 2002, and it looks at European monetary policy (monetary integration) in light of the introduction of the Euro on 1 January 2002. McNamara compares the introduction of the Euro with historical cases of currency unification, and demonstrates why patterns of legal, political, and social authority creation at the supranational level must be taken into account to understand recent developments. The first section of the chapter briefly outlines the history of the Euro and EMU (European Monetary Union), and the second examines the potential for currency to act as an engine of institutional innovation and expansion by reviewing the literature on comparative political development, and generating a template for understanding the specific mechanisms that might link currency creation to political development. The third section situates this theoretical discussion within a historical perspective on monetary and institutional change, and the final section turns to a discussion of the potential future trajectory of the EU, asking whether the similar origins of currency consolidation are likely to produce similar results in terms of broader state‐building effects as described in the comparative political development literature. It is argued that the American historical example suggests the potential paths towards a federal Europe that the introduction of the Euro may portend, most importantly in terms of fiscal capacity.

This chapter attempts to apply some of the theories described to the European context. The main argument is that most of the scenarios provided by a range of respected economists will generate pressures for the improvement of the economic role of the centre including fiscal centralization. In addition, economists' analyses of the functioning of the European Central Bank (ECB) and the Stability Pact, suggest that within the European Monetary Union (EMU) area the relationship between fiscal and monetary policy will become central to economic strategy. It specifically summarizes the policy implications of competing economic scenarios and places these implications in political context by evaluating the capacity of the European Union (EU) institutional structure and especially the European party system to accommodate them. Relevant survey data on levels of support for EU institutions is also explained. There is little evidence to suggest that, as a whole, the peoples of Europe have obtained a level of identity with European institutions that is in any way equivalent to their identification with existing nation states and regions.

Differentiated integration, e.g. arising out of the flexibility provisions of the Amsterdam Treaty, is a special instance of functional asymmetry within compound political systems such as federal states or the EU. Functional asymmetry exists when central decision‐making applies unevenly across the system; the system is asymmetrical in that some of the participants (provinces, member states) exercise greater powers than others. This chapter explores when and why such an arrangement may be acceptable to participants or may even be imposed (as with admission rules for EMU). It argues that states’ attitudes towards asymmetry may be shaped (1) by economic calculation (cost/benefit), (2) by possible tendency to link economic issues with non‐economic ones (democracy, human rights), or (3) by institutional design, which may permit matching of functional asymmetries with political ones (uneven participation in central decision‐making). In all three respects, the question arises, what is fair, or reasonable? Judgements on such matters are inherently subjective, but still may be the focus of reasoned discussion identifying two possible abuses of asymmetry: privilege and exclusion.

The distinction here explored between unilateral and multilateral currency union takes the experience of the European Monetary Union (EMU) as a basis. Unilateral currency union is the adoption by one country of the money of another, without consent or agreement. Multilateral monetary union happens when a group of countries adopt a new currency, setting up the necessary institutions jointly. Considering six aspects, multilateral monetary unions have important advantages over the unilateral form of union. These aspects are: Macroeconomic stability, seignorage distribution, last-resort lending, fiscal policy, central bank structures, and resilience to stress.

This chapter examines the conceptualisation of European unemployment by comparing the Organisation for Economic Cooperation and Development Jobs Study and the European Commission's White Paper Growth, Competitiveness and Employment. The emergence of a European employment policy is examined in terms of a shift from a social policy agenda to an employment policy agenda, arising out of the interaction between economic and social policy, but owing more to the former, in particular with regard to the perspective adopted on the role of labour market institutions (rigidities) in unemployment. The chapter also considers how the European Employment Strategy connects with the Economic and Monetary Union (EMU), and how this link (essentially bringing employment within the criteria for the monetary union) has placed employment policy within a particular discourse, one which takes a distinctive perspective on the role of labour market rigidities, in creating or perpetuating unemployment.

This chapter sets out the purpose of the book, which argues that the Maastricht Treaty created a surveillance procedure that proved to be critical, at times decisive, in the making of the Economic and Monetary Union (EMU) by determining which countries gained entry into the EMU. Understanding surveillance activities of Eurostat, an obscure agency in the EC, is the key to answering questions about how the EU influenced the fiscal policies of the member states, how it created harmonized and credible budgetary data, and how it attempted to control what it regarded as member state budgetary gimmickry. It discusses the use of principal—agency theory to analyze, first, the delegation of authority from member state principals through the Treaty to surpranational agents to conduct the procedure; second, the dynamic relationships taking place among the parties involved in the surveillance process; and, third, how autonomy and institutional design influence the credibility of the surveillance procedure. An overview of the subsequent chapters is presented.

The long‐term prospects of the European Monetary System (EMS) are examined from a non‐technical viewpoint, considering the system as a variable rather than a given. The prospects are seen as comprising three phases. The first phase, which has now concluded, is consolidation. The second phase is the current phase, and is the period in which the ‘inconsistent quartet’ emerges. This involves seeking to achieve the impossible task of reconciling free trade, full capital mobility, fixed (or managed) exchange rates, and national autonomy in the conduct of monetary policy. The third phase is starting to foresee European Monetary Union (EMU); in this phase full implementation of free trade and capital mobility will occur.

The question of whether European Monetary Union is conceivable in the absence of political union is addressed in the light of the declaration made in 1989 by Nigel Lawson (then the British Chancellor of the Exchequer) that ‘monetary unity would require political union, which is not on the agenda’. It is noted that there are two ways to make this come true. The first is that there are good arguments to substantiate the contention that the European Union is already a political union, and the second is that the vocation of the European Union is to become a political union, and that monetary union is an important part of this process.

This chapter yields at the outset that no single explanation is sufficient to explore the Maastricht phenomenon. The claim is, merely, that the adopted realist perspective is the single most convincing approach to what for many observers—and especially those from outside Europe—is a genuine intellectual puzzle. This puzzle contains two distinct dimensions: the timing of European Union and in particular European Monetary Union, and the fact that deep economic and political union between disparate states has only occurred in Europe. An overview of the remaining chapters is provided as well.

This chapter provides an audit on the future prospects of the European Union (EU), with particular attention focused on the likely scenarios under which the union, or parts of the union, might survive or break up. Although by definition speculative, this exercise is informed by the book's theoretical framework. It starts by presenting the viability of the European federal bargain. It is hard to determine a scenario where European Monetary Union (EMU) does not also need a degree of political union which is well beyond that operating in the EU of 1999. It will be several years before the full economic and political costs and benefits of EMU become apparent. Moreover, this book has argued that in the European case, the political conditions necessary to accommodate what could be substantial economic centralization resulting from EMU are largely absent. Therein lies the danger to the viability of EMU.

The publication of the Delors Report in 1989 revived the classic confrontation between the institutional and market components of monetary systems. In the institutional component, public action is fundamental and there is an element of monopoly; legislation, rules, and public bodies play a decisive role. In the market component, private action is fundamental, and there are individual decisions and competition; the customs and habits of individuals are key factors. In this chapter on monetary competition in the process leading to European Monetary Union, the discussion focuses on the discrete and complementary roles of public and private action, institutions and the market, and central banks and currencies.

Italy's economic and employment problems were to a large extent home made, whereas external economic and political pressures did facilitate internal revitalization. While export‐oriented industries in northern Italy had maintained international competitiveness, overall employment rates were very low, and inflation was very high until the early 1990s. Since the clientelistic Italian state was not able to put the brakes on the spiral of wage and price increases that were automatically linked to all sorts of public and welfare‐state expenditures, public‐sector deficits were rising inexorably. After the collapse of the old party system, however, the unions were able and willing to enter into a series of accords with successive reform governments that not only facilitated price stability through wage restraint but that also legitimated significant welfare cutbacks that contributed to budget consolidation. The impetus for reform was a serious political commitment to meet the stringent Maastricht criteria in order to ensure Italy's membership in the European Monetary Union.

The issue is discussed of how much fiscal union (fiscal discipline and coordination) is needed among member countries’ budgets to ensure European Monetary Union. Aspects of the question addressed include budget deficits and European monetary policy, the distributive problem, the functions of the European Central Bank (ECB), and the coordination of fiscal policies.