Fiscal prerequisites for further monetary convergence in the EMS

Abstract

The EMS was established as part of a comprehensive strategy to achieve economic stability throughout the EC, based on convergence through the elimination of regional disparities. To date, monetary convergence has been achieved but fiscal divergence remains a feature of Europe as sovereign states follow sovereign policies. This paper develops a model to examine the dynamic interactions between exporters and domestic producers, taking account of exchange rate changes, and warns that the problem of fiscal imbalance must be addressed. JEL: F15, F36

Keywords

• EMS
• monetary convergence
• fiscal divergence