The Conditional Transformation and the Structure of Disparity in the European Monetary Integration

Abstract

European Union starts the 3^rd stage of EMU on January 1999. It will symbolize a grand new epoch for the monetary history, but also will it include so many problems that the European monetary integration may proceed into the negative big bang.
Many papers indicate that 3^rd stage with EURO has a lot of problems, but they didn't explain the essence of these problems. My paper firstly explains that there is the structural disparity in the EMU process, and tries to offer the concept ‘conditional transformation’ to theorize that disparity.
This paper systemizes the 3 elements which make up the structure of monetary integration. The first element is monetary theory. The second one is integrational ideation. The third one is the reality which surrounds the monetary integration.
Monetary theory is represented by Optimum Currency Area theory. Integration ideal has changed into the policy concept named convergence criteria. And these two elements seems very similar in its appearance. But actually the characteristics of these two are quite different.
OCA criteria are the sufficient condition, and convergence criteria are the necessary condition. These two criteria cannot coincide with each other except in the period when the economy is located in its relative boom. In fact this happened in the latter half of '80s and allowed the coincidence of theory, ideal and economic reality.
Maastricht regime could be justified on the feasibility of necessary-sufficient condition of this specific period. But the problem is that this specificity cannot be extended into the general situation.
The general disparity in the EMU structure develops into the divergence between the monetary policy and fiscal policy and produces the problem of sustainability. The former is completed regionally in the form of single currency EURO, but the latter is on the most part in the control of national authorities. ERM II or the Stabilization Pact cannot fully support the EMU3 regime in its transition. Because of the primary divergence between the conditions, the Europe-wide adverse economic development, especially asymmetric one, can negatively affect the sustainability of EMU. In this situation the only reference that can sustain this regime is ideal-biased policy. In that context, EMU3 regime's essential problem is how long the integration ideation can suppress the problematique emanated from the structure of the theoretical condition and economic reality before it reaches the perfect political-economic union.