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Results from cointegration and error-correction models for testing the effects of currency substitution in Greece, Portugal and Spain, in light of their upcoming participation in the European Monetary Union, revealed no significant short- or long-run currency substitution behavior in any country, suggesting that joining the union now would offer them no real benefits, unless significant economic convergence is achieved.

We study the monetary-fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy are analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the cumulated response of the fiscal deficit is positive. Conversely, in response to an unconventional easing affecting the long end of the yield curve, the primary fiscal position barely moves. This is consistent with the long-run effect of unconventional monetary easing on the price index, which is about half that of conventional easing. The aggregate long-run cumulated surplus is mainly driven by Germany's fiscal policy during the period in which unconventional monetary policy was adopted.

We study the monetary-fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy are analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the cumulated response of the fiscal deficit is positive. Conversely, in response to an unconventional easing affecting the long end of the yield curve, the primary fiscal position barely moves. This is consistent with the long-run effect of unconventional monetary easing on the price index, which is about half that of conventional easing. The aggregate long-run cumulated surplus is mainly driven by Germany's fiscal policy during the period in which unconventional monetary policy was adopted.

The future European Central Bank needs monetary policy instruments which have yet to be agreed. At present, the range of instruments is very heterogeneous in the potential member states. This book offers a systematic analysis of the issue, considering general theoretical arguments as well as the concrete institutional situation in European countries. Taking the Bundesbank's instruments as the starting point, their rationale is discussed against the background of experience elsewhere. The theoretical and empirical treatment leads to several competing concepts. Taking the three goals of monetary efficiency, fair competition and decentralization establishes a strong case for the use of "standing facilities" and to a lesser extend "reserve requirements", albeit modified and brought up-to-date

The monetary union is an open economy with perfect capital mobility. It consists of two identical countries, say Germany and France. A fiscal expansion in Germany causes an appreciation of the euro. This in turn lowers both German and French exports. The net effect is that German income goes up. On the other hand, French income goes down. And what is more, union income does not change. An increase in German government purchases of 100 produces an increase in German income of 74 and a decline in French income of equally 74. What is needed, therefore, is a mix of monetary and fiscal policy.

The main statements contained in this paper can be summed up as follows: 1. The single market created a supranational economic area. It is only logical from an economic point of view that the single market should also give rise to a single currency. 2. In order to improve Europe's competitive position vis-à-vis Japan and the USA, the dollar must be rivalled by a European currency having equivalent clout. 3. The convergence criteria are economically justified. Stable prices, low interest rates, the reduction of dramatically inflated national debts and the elimination of competitive devaluations stimulate investment, jobs and growth. 4. The European Central Bank will assume the status of a European monetary government. If an equal effort is to be made to achieve employment and social policy objectives, then an economic government and a social government are also required. 5. The task of an economic government, in the form of a harmonised economic policy for the EU Member States, is to promote job-creating investment in new technologies and modern infrastructure projects. 6. The task of a social government, in the form of Union-wide coordinated trade union representation, is to safeguard social standards, participation rights and wage claims. 7. Only the trio of Monetary, Employment and Social Union make sense and entail genuine legitimacy. 8. In the light of the ongoing trend towards globalisation, the cost of failure and the associated re-establishment of putatively wholly sovereign nation states would be counter-productive for all countries in Europe.