The Political Sustainability of European Monetary Union

This article synthesizes a large body of work in applied economics on the likely effects of European Monetary Union with an established literature in political science on the political sustainability of intervention by central or federal authorities in the economies of diverse nations, states or regions. Three possible economic scenarios resulting from EMU are identified – fiscal centralization, monetary discipline and loose money. The greatly enhanced central role implied by the first two would be difficult to legitimize in the context of the absence of a European citizen identity or party system. Historical precedent suggests that, in democracies, both central redistribution in social spending and retrenchment of established social programmes are facilitated by jurisdiction-wide political parties. The loose money scenario, while viable in most member states, would be unlikely to be acceptable in Germany. The article concludes, therefore, that all three scenarios most often predicted by the economics literature carry with them a risk that they will be difficult to sustain politically.