Journal Detail

Journal 19 – Monetary Union

April 2007

The Economic and Monetary Union of the European Union has proved that it can create relative value on both an operational and an economic level. With its progressive free flow of capital, people and goods, it has created an improved environment for growth. Numbers released by the European Central Bank show that not only are the Euro Area countries fully involved in the globalization process, but the Euro Area’s capacity to adjust and to grow in the presence of globalization is far from having achieved its full potential. Also for the emerging markets, the catalyst for growth is there. Most likely, reduced barriers to foreign direct investments (FDI) and increased liquidity are at the base of this.

But the creation of a monetary union is far from easy. In the Euro Area, there are strong cultural differences in finance matters between the different members (and even the communities within those members). In Germany, credit cards are hardly used as the Germans prefer deferred debit; in southern Italy, people do not use banks because of an ingrained distrust in institutions; e-banking or store value cards have extremely different adoption rates in the different member states. These examples, plus the difficulty of economic harmonization in nations where the underlying drivers of GDP remain so different, prove that a monetary union is a complex thing to achieve on a cultural, social or economic level.

So how can the world learn from the experiences of the Eurozone within the European Union? In my opinion, it is finding that perfect balance where you create a union that allows for the free flow of assets that will increase growth without generating the legal and political overhead that in itself counters all the benefits.

In this issue of the Journal, our contributors offer us a series of insights that will cover in depth the lessons that other unions in the world can learn from the euro, but also what the risks are when a monetary union fails. I trust that the insights collected in this edition will challenge and stimulate your own thinking on this important matter and make a valuable contribution to the wider debates.