THE EURO AND THE EMU: LESSONS FOR MERCOSUR

Academic debate in South America favours a MERCOSUR monetary union based on the euroand the Economic and Monetary Union (EMU), and inspired by the theoFy of Optimal CurrencyArea (OCA). This paper aims to discuss whether the adoption of a single currency in the EMUmould of monetary union, is appropriate and feasible for the MERCOSUR. Three lessons arederived for MERCOSUR from the euro and the EMU experience: the adoption of the EMU modelof monetary union would imply deflationary policies; there is the dilemma of sequencing betweenpolitical union and economic integration; and the necessity of accounting seriously the concernsof the OCA literature. The paper also shows that there is no evidence that macroeconomic convergenceis evident in MERCOSUR, since the area only minimally achieved some basic criteriadefined by the OCA literature