Tens Years of the Euro

Posted on: 26 November 2008

2008 marks the tenth year of European Monetary Union.  In a public lecture organised by the Institute for International Integration Studies (IIIS),  Professor Philip Lane, Professor of International Macroeconomics at Trinity College Dublin and Head of the Institute for International Integration Studies (IIIS)   assessed the impact of the  monetary union on the European and Irish economies.

Professor Lane demonstrated how the euro had transformed the European financial system. While financial integration offered considerable long term benefits, the first decade of EMU had also been marked by significant credit booms in peripheral member countries that were now leading to significant adjustment problems. Looking to the future, he addressed the macroeconomic policy challenges that faced domestic and European policymakers in successfully adapting to life inside the euro area.

Professor Lane  argued that the euro had been a remarkable success in providing monetary stability for Europe and transforming its financial stability. In relation to the current financial crisis, it was clear that the member countries were better able to deal with the current volatile conditions relative to other European countries, with Iceland being the most extreme example of the dangers of remaining outside the euro area. 

However, he warned that the Irish policy framework had not yet fully adapted to the new monetary environment. In particular, fiscal policy needed to be much more prudent during good times, in order to allow more aggressive counter-cyclical intervention during future slowdowns. For social partnership, a major challenge would  be to fight unemployment by increasing the flexibility and responsiveness of public sector wages to shifts in macroeconomic conditions.