Western Europe, 1979-2009

As the start of the European Monetary Union (EMU) approaches, Western Europe may be heading for troubles that could extend to the United States. The problem lies in the West European political economy. The imposition of highly restrictive fiscal and monetary criteria laid down in Maastricht in 1991 as requirements for membership in the EMU, coupled with economic impacts brought about by East German reconstruction, has resulted in high unemployment and other harsh realities. If Maastricht's rigid macroeconomic constraints are relaxed--if EMU balances its stress on inflation control and fiscal rectitude with equal emphasis on employment and growth--then rising unemployment may be reversed in the short run and conditions can be set for long-run improvement. If not, and if unemployment remains near or above 12 percent, then the worst is yet to come. What will happen to EMU will depend on the futures of the four key West European political economies: Germany, France, Italy, and the United Kingdom. The author derives four scenarios, ranging from a worst case to "a way out."