Monetary policy and structural unemployment
Even if the last chapter produced evidence that there is strong political will to maintain price stability in Europe and that it should prevail in European Monetary Union (EMU), the high levels of unemployment in Europe are a matter of concern. The IMF (1997:68) has warned: ‘A failure to address labour market problems would prevent Europe from realising its full growth potential, and could also weaken the credibility of the euro if financial markets perceive that persistent unemployment is eroding support for prudent macroeconomic policies’.1 In the 1998 World Economic Outlook (IMF 1998:25) it reiterated its warning: ‘…the broad consensus in favour of policies directed at price stability could be challenged if sufficient progress is not made in reducing structural unemployment; and without such support, even an independent central bankcould find it difficult to sustain such policies for long’. Thus, the issue of unemployment is relevant to the sustainability of EMU, although the consequences may be ultimately more farreaching by undermining not only the currency union, but also the social and political consensus for European integration. On the other hand, by solving its unemployment problem, Europe could re-connect with the economic dynamic of the Golden Age.