Date of publication in the: 20.5.1997 Full text

Recent economic forecasts increase the probability that firstly, the EMU can start as planned on January 1, 1999 and secondly, that it will start with a large group of countries. The economic implications of the artificially unification of "hard-currency " and "soft-currency " countries are analysed by means of macroeconomic model simulations. The results of a large "non-optimal" EMU are as expected. On the one hand, there are positive income effects for all countries-although unevenly distributed over the participants- on the other hand, the internal (inflation) and external (value of the Euro vis-à-vis the Dollar) stability are at risk. The "hard-currency " group will be the major winner (in terms of real GDP and employment), whereas the "soft-currency " group has to carry the adjustment costs to a regime of fixed exchange rates (Euro) which results in slower growth, decline in employment and a deterioration of their budgetary position. The necessary convergence of prices and interest rates leads to an increase (decrease) of inflation and interest rates in the "hard-currency " countries ("soft-currency " countries). If the EMU will start with a large group there will be a tendency to devalue the Euro against the Dollar. As a consequence of the uneven economic performance of a large (non-optimal) EMU I would suggest to start the EMU with a core group of "hard-currency " countries. After this mini EMU succeeded the other Member States could join the EMU