The Political Dilemma of the Economic and Monetary Union

This article examines the political dilemma faced by the Economic and Monetary Union decision-makers with regards to fiscal policy co-ordination. It argues that two alternatives are available: national fiscal policies, constrained by budgetary rules at a central level, or a federal fiscal system. The operation of both of these options is discussed in accordance with the Optimal Currency Area theory and with reference to the monetary union in Europe. The former proves to be feasible, but not desirable; whereas the latter is desirable, but not feasible.