Comments on Chapter 6 – The future of the euro: a public choice perspective
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In the 1990s debate about European Monetary Union (EMU) revolved around the questions of whether the euro-zone constitutes an optimal currency area and of whether the institutional framework of EMU would ensure economic stability and foster further integration among its participating countries. Roland Vaubel’s analysis, which is conducted using the tools of public choice theory (the median voter theorem, political business cycle theory, the economic theory of bureaucracy), seems to answer these questions in the negative, or at least warns against excessive optimism. His main findings can be summarised as follows:

First, the historical record reveals that countries in the euro-zone have widely differing inflation preferences; since the European Central Bank (ECB) Governing Council decides monetary policy with a simple majority rule, it is the median voter’s preferences which are decisive in shaping euro-zone monetary policy; the median voter’s preferred inflation rate may turn out to be greater than the ECB’s long-run inflation goal.