With the abolition of exchange rates the role of wage formation in the European Monetary Union changes fundamentally and national economic policy in particular fiscal policy faces new restrictions. These are analysed in the first two chapters. A major impact is expected for wage formation. To achieve a convergence of economic developments wage finding has to follow in all EMU member countries basically the same rules. An empirical investigation using econometric methods show that this is presently not yet the case. In particular in the southern European countries wage finding is different from that in the rest of the EMU. Frequently the introduction of Euro is perceived as a signal to lower wages all over Europe to overcome the dismal employment situation. The book addresses the question whether such a race for lower wages is appropriate in terms of employment creation. Theoretical considerations as well as simulations on an econometric multi country model lead to the conclusion that to enhance growth and employment a productivity oriented wage strategy is advisable, a strategy already followed in particular in Austria, the Netherlands and Germany. In this case distorting changes of competitiveness not based on innovative successes are avoided and at the same time domestic European demand is stabilised.

Economic Policy in Wake of Monetary Union.- An Economic Policy Framework for European Monetary Union: Some Preliminary Theoretical Considerations; The Function of Exchange Rates; Monetary Policy in a Single Currency Area; Monetary Convergence; Monetary Strategies after the Introduction of Monetary Union; Fiscal Policy after the Beginning of Monetary Union.- The Role of Wage Policy after the Introduction of Monetary Union: Wage Development and Convergence in the Run-Up to Monetary Union; Wage Negotiation Systems in Europe; Labour Market Flexibility in a Common Currency Area; Some Theoretical Considerations; Empirical Analysis; Institutional Conditions for an European Wage Policy; Degree of Centralisation, Growth, Structural Change and Employment; Degree of Centralisation and Labour Market Flexibility; Non-Wage-Related Competitive Elements; Wage Policy in a Common Currency Area.- Simulations on the Future Development for the European Labour Market: The Model and its Modifications; The Structure of the Simulation; The Effects of Monetary Union; Nominal Wage Decreases; Real Wage Decreases; Transforming the Social Security Systems; Productivity-Oriented Wage Formation; Reacting to Shocks.- Conclusions and Economic Policy Recommendations.