Economic and Monetary Union and Beyond: Differentiation in the EU

This chapter looks at foreign exchange market developments in the EU from the breakdown of the Bretton Woods system to the introduction of the Euro, setting this also within the optimal currency area literature. While several member states joined the original Euro Area (EA) in the years after the introduction of the Euro, and two more are in the process of joining, there remains a group of EU member states, comprising over 80 million people, not likely to join any time soon. Another 100 million people are in the “near-EU”countries, such as the UK, Switzerland, and the countries of the western Balkans, many of which are economically and socially heavily interconnected with the EU. The chapter looks at the reasons for joining or staying out. It also looks at two major institutional innovations tied to the EA: the Single Supervisory Mechanism and the European Stability Mechanism (ESM). The recent enhancements of the ESM are a big step forward in EA integration, further enhancing the dichotomy between the core and the periphery.