ABSTRACT
What will be the effects of the introduction of the euro on economic and financial markets? Standard economic models suggest that in an ideal world with competitive markets, a change in the numeraire should not affect the general equilibrium of the system. In practice this may not be true. First, actual economies are not completely competitive. The disappearance of exchange rates among European currencies will eliminate a way to readjust relative prices after asymmetric shocks. Without perfect mobility of labour and perfect flexibility of relative prices, such a loss may affect the equilibrium. Second, the process of convergence towards the euro has carried with it a number of macroeconomic readjustments in order to comply with the Maastricht criteria on inflation, deficit and debt. Limitations to the instruments of national economic policy are supposed to be permanent and are likely to affect the allocation of resources.
