An evaluation of European monetary union in its fifth year

Abstract

This master thesis re-evaluates the costs and benefits of the EMU from a broader perspective in the light of the performance of EMU. This study tries to reveal the answers to two major questions. One: Is entering the EMU an economically rational choice?, whilst the other question is Did the EMU perform in line with expectations?. In order to reach the answers I briefly outline the history of the EMU and try to analyze all the aspects of costs and benefits of EMU. In addition to this, I examine the Euro area from the perspective of Optimum Currency Area Theory. Finally, I investigate the macro-economic performance of Euro area, I apply paired t-test and non-parametric Wilcoxon tests in order to test the performance of EMU member countries before and after the EMU (for the period 1994-2003). My findings reveal that entering EMU brings marginal benefits compared to the risks that it brings. In addition to this, EMU has not brought increased price stability, nor has it boosted growth, employment and intra-trade figures in the Euro zone. The rationale of EMU can only be understood if political motives are taken into account.