ined with benefits and costs:
Benefits:
1. The abolishment of intra-european currency crises as a consequence of independent national monetary policies under high capital mobility. p> 2. A reduction of monetary risks by the pooling of risks and an increase of the potential for stability within Europe. p> 3. A reduction of transactions costs and, as a consequence, an improvement of the resource allocation. p> 4. The avoidance of unnecessary adjustment burdens in the real economy. p> 5. The elimination of beggar-my-neighbour-policies by the choice of exchange rates. p> 6. The abolishment of market segmentation due to exchange rates, an increase in market transparency and a reduction of price discriminations. p> Costs:
1. In the FRG, we cannot choose anymore an inflation rate independently of the other countries. p> 2. The exchange rate instrument is lost as an adjustment mechanism. On one side, this loss is justified by the fact that the need for exchange rate adjustments will disappear due to the unified monetary policy in EMU. On the other side, for the real economy only a knife with two cutting edges gets lost which in addition is not permamently but only transitorily effective. p> EXTERNAL LINKS
1. EMU: A Historical Documentation (European Commission) 2. The euro (European Commission Economic and Financial Affairs) 3. The euro and other currency unions in history 4. What is the European Monetary Union? < University of Iowa Center for International Finance and Development/
