In Mundell’s taxonomy, adoption of a common currency is a strictly negative factor for stability because it eliminates the shock-absorbing features of flexible exchange rates and independent monetary policies. In fact, however, the effects of the common currency on macroeconomic stability in Europe have been positive as well as negative.
Notably, the structure and mandate of the European Central Bank (ECB), as well as the perception of continuity with the policies of the pre-euro Bundesbank, have enhanced the ECB’s credibility and contributed to low and stable inflation in the euro-zone.