The Concept of monetary union and the European Monetary System

Abstract

This research analyzes the concept of the monetary union and the European Monetary System (ENS). It consists of three parts. The first part starts by covering the concept of monetary union and the theoretical conditions that may contribute to the success of a monetary union, and ends by defining the EMS studying the motives for its development. The second part studies the functioning of the ENS from a technical point of view. It does this by dealing with the exchange rate and intervention mechanism, the European Currency Unit (ECU), and the existing credit mechanisms. The third part of this research tries to evaluate the perfomance of the EMS. Firstly, it studies the stability of exchange rates as a first step in achieving a monetary union. Next, it reviews the convergency of economic variables that have either direct or indirect effect on the exchange rate variability. Finally, this research lookes at the higher growth and employment objectives of a monetary union through increased intra—union trade