"Macroeconomic policy during the transition to monetary union"

The transition to European Monetary Union (EMU) may start in 1999. The transition phase, as outlined in the European Commission green paper on the practical arrangements for the introduction of the single currency, will, however, be spread out over a period of up to three years and six months. During this period participating member state exchange rates will be irrevocably fixed and monetary policy will be implemented by the European Central State Bank. Conversely, fiscal policy will be guided by the Maastricht convergence criteria but implemented at the member state level. This paper evaluates the possible problems in formulating macroeconomic policy as participating member states proceed to adopt a single currency, and considers policy coordination and objectives, seigniorage, cohesion and dynamic economic and political considerations during the transition period