THE APPLICATION OF OPTIMUM CURRENCY AREA CRITERIA TO EUROPEAN MONETARY UNION

Abstract

Debt crisis in several Member States of the euro area has reopened discussions regarding the sustainability of European Monetary Union. Adoption of the single currency has proven to be more costly for the economies which are structurally divergent from the core euro area economies (Germany, France, Italy). In this study I analyze the opportunity of a country to be part of the European Monetary Union on the basis of optimum currency area criteria. According to them, the euro area is characterized by an increase in trade and financial integration between member States, by emphasizing differences in competitiveness and lack of automatic fiscal transfers. If monetary union will not be completed by a fiscal union, the European monetary construction will be one vulnerable and benefits of joining to this will decrease.

Keywords

• euro area
• monetary integration
• fixed exchange rate
• trade integration
• fiscal transfers