United States as a Monetary Union: A Lesson for Europę?

The United States had not introduced a single currency until 1879, and had not established the central bank before 1913. At that time, both wages and prices were highly flexible, and therefore there was no need for resorting to currency exchange rates and monetary policy for dampening demand-side asymmetric shocks. On the other hand, the European Monetary Union (EMU) was set up at the moment when the situation was just the opposite, with rigid wages and prices, and liquid currency exchange rates and flexible monetary policy provide the main weapon in fighting recession. Moreover, economic research has proved that the Eurozone fails to meet the requirements necessary to accept a single currency (optimum currency area), and is therefore susceptible to demand-side asymmetric shocks(affecting only selected areas). For that reason, establishment of a single currency for a large group of countries and transferring control over monetary policy to a supra-national institution deprived all members of the group of efficient tools for combating asymmetric economic shocks. It is not a coincidence therefore that since the Treaty of Maastricht, the pace of economic growth in the Eurozone remained markedly below the American GNP growth dynamics. This in turn caused a significant growth of unemployment in Europe, while in the US the number of the unemployed dropped considerably. Unfortunately, the long-term forecasts bring no grounds for optimism: a reason why the success of the EMU remains an open question.