If there are such gains to be made from a common currency in a reunified Europe, would it not be possible that such gains may also be attained on a global level? Should we continue on a path towards more global monetary cooperation? There are many arguments both for and against such an arrangement. In recent years we have seen substantial exchange rate fluctuations between some of the world’s large economic blocs. These have largely been related to developments in the US dollar. The dollar’s weakening against the euro has recently gained impetus once again; in two years, the euro/dollar exchange rate has gone from a low of 84 cents to 1.18 dollars in recent weeks - a rise of just over 40 per cent. Discussions of the implications of an overvalued dollar for the US current account deficit have quickly turned into concern over the effects of the rapid fall in the dollar on euro area growth. Should there be a quicker correction in the US current account deficit due to diminishing interest among international investors in US assets, the dollar could weaken further. A fast and dramatic depreciation of the dollar could derail Europe’s fragile recovery.
Meanwhile, the risks that stem from the countries possibly diverging from the euro area average are perhaps also clearer than for Sweden (which is a country that is unusually well-integrated with euro area countries and has a similar economic structure). But some factors suggest that the new Member States in central Europe do not need a different monetary policy than that of the euro area. These countries also have close ties with the rest of the EU, which is their biggest trading partner by far, accounting for some 50-70 per cent of imports and exports. Having said that, the countries are still undergoing a period of quick change; it is conceivable that any potential shocks during such a transitional period would be managed better through a national monetary policy. Their growth is and should be considerably higher than the EU average as long as they continue to reduce the differences in their standard of living compared with the rest of the EU. This always entails risks of overheating similar to that experienced by the fast-growing Irish economy. The assessment of the risks related to the process of change and of the long-term gains varies between the different candidate countries depending on how open and flexible their economies are. Nevertheless, it seems that the advantages of integration will outweigh the disadvantages when the new countries have assessed the euro, even if it is likely that some of the new Member States will have to wait longer than others before introducing the euro.