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The EMU and the USA: What Are the Differences?

In: Dollars, Euros, and Debt

Author

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  • Vito Tanzi

Abstract

From the time when the European Monetary Union was being created, several American economists, including prominently Milton Friedman and especially Martin Feldstein, in several academic and more popular articles, maintained that the EMU was a “structurally flawed project” that did not have much chance of success or survival. In the views of these and some other economists, mainly from the US and the UK, there were intrinsic and fundamental weaknesses in its design. For Friedman the main problem for the EMU was that of having fixed an important price (namely the exchange rates) permanently, between countries that were likely to have different productivity gains over the years. Friedman was a strong believer in flexible exchange rates and in free prices where the market determines the prices. As a consequence he went as far as predicting a life expectancy for the euro of no more than ten years. (See his 1997 article and Martino, 2008.) It is not clear why this problem would not affect economic relations, say, between California and Texas, which also have a fixed exchange rate between them (they both use the dollar) and that may experience different productivity gains over the years.

Suggested Citation

  • Vito Tanzi, 2013. "The EMU and the USA: What Are the Differences?," Palgrave Macmillan Books, in: Dollars, Euros, and Debt, chapter 10, pages 95-108, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-34647-6_10
    DOI: 10.1057/9781137346476_10
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