The most important question about EMU that faces European decision makers is not how to achieve monetary union, 1 but simply this: why do it at all? What is EMU for, and what is it supposed to achieve? Answers to those questions were quite clear in the 1980s. But the end of the Cold War changed drastically European political and security issues, that powerfully frame the economic implications in the EMU debate. This short essay discusses a critical change in the logic of European integration and its implications for the rationale behind EMU.
Most economic analyses of EMU now acknowledge that the pure economic case for a single currency in Europe is weak to non-existent. It may be that decision makers are listening to bad economic theory. More likely, the project is only partly about economics, and has been driven quite strongly by political and security issues. Economic analysis has contributed greatly to understanding the technical details and possible pitfalls of EMU. But while the technical economic questions about how to merge currencies have not changed that much with the end of the Cold War, the politics and security questions surrounding EMU have changed dramatically.
EMU in its previous, late Cold War manifestation, was a project aimed at cementing Germany's relations with its neighbors and diffusing the political-economic power of the German mark (Dmark), as key steps in building a European polity. While it is still partly that, EMU must now also contend with an enlarging community that will soon contain a substantial number of member states that are not modern industrial economies. The notion of "convergence", both as a prerequisite for participation in monetary union and as a principal objective of the project, takes on new meaning.
Variable geometry in Europe is a fact of life. But discussions about the institutional structure of variable geometry remain stuck in an old framework which is fast becoming a fiction. This problem shows up right now more clearly in EMU than elsewhere (although it is not confined to monetary union). The conceit is that variable geometry means temporary derogations for states that are a bit slow in their ability to accept the "acquis communautaire" as a package. That may have been nearly true in the past, but it no longer makes sense. The problem of how to manage the relationship between EMU insiders and outsiders in the new Europe is not simply about developing a strategy for a temporary period of adjustment, and it is not going to be about easing the laggards into the system over a period of just a few years. Instead, EMU now needs to be part of a political, economic, and security rationale -and strategy -for managing variable geometry and the possibility