ABSTRACT
The revaluations and currency appreciations during the transition period when Austria's hard currency policy fought for credibility increased unemployment and decreased real wages. Comparing the Austrian and Dutch experiences with the French and Italian demonstrates that the renunciation of an independent exchange rate policy requires big changes in economic policy and abandoning national goals. France dampened demand with restrictive monetary and slightly less expansive fiscal policy, which reduced production, employment, and inflation. Monetary integration has a long history in Europe, although a geographically wider monetary union has been discussed only since the early 1960s. In the long run, however, the fundamental structure of an economy can be changed, and most likely will be changed, in the course of European economic integration. In theory, adjustable exchange rates within target zones are determined by fundamentals and by expectations about these fundamentals.
