With the introduction of the euro as the common currency in 1999, the EMU member states took a major step towards integration whose economic and political significance could only be underestimated. From an economic point of view, a domestic currency is an essential component of a nation state, whether that is politically desired or not. Economically members of a currency union become regions within the common currency area. They renounce the possibility of exchange rate adjustments and an independent monetary policy. In a currency area, the common central bank holds the monopoly over issuing money. It dictates the short-term interest rate in the whole currency area, refinances commercial banks and acts as lender of last resort. Monetary policy not only influences the inflation rate in a currency area, but it also deeply influences its economic development including long-term growth and employment. If a country with an independent currency joins a monetary union it changes one of the key fundamentals of its economy.

In our opinion, money and monetary policy are neutral neither in the short nor in the long term. This is in line with Keynes’ paper, “A Monetary Production Economy”:

This view corresponds to the fact that the world economy is divided into different currency areas, which in turn are subdivided into different regions. Different currency areas in conjunction with the specific monetary and other macroeconomic policies followed lead to different economic developments. This does not mean that money and monetary policy alone determine economic development. But it means that they have a substantial influence on short-term and long-term developments. The type of monetary union can thus promote growth and employment, but it can also trigger the opposite.