SOME LESSONS FROM MONETARY UNION IN EUROPE FOR NEW ZEALAND

in New Zealand and Europe
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Abstract

Experience over the last few years in closer monetary integration in Europe suggests that some of the accepted ideas relating to the possibility of monetary union for New Zealand might be updated. In particular, the governance structures in Europe suggest that there are acceptable ways of structuring asymmetric unions between unequal partners. These governance issues extend beyond the institutional arrangements for monetary policy to fiscal and other policies that affect the macroeconomic prospects of the partners. There are even successful ways of gaining much of the benefits of a monetary union unilaterally as the case of the currency boards of Estonia and Lithuania and the exchange rate pegs of Cyprus and Malta illustrate. Secondly, using the examples of Finland and Ireland, the paper illustrates that monetary unions can amplify the benefits from favourable asymmetric shocks and hence can form part of wider development process as being experienced by the accession countries. Lastly, changes in the behaviour of members since the convergence process began in earnest in 1997 suggest that computation of expected costs/benefits might need revision.

New Zealand and Europe

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