THE POLITICS OF MAASTRICHT

Abstract

The Economic and Monetary Union (EMU) treaty signed at Maastricht does not guarantee the recreation of German‐style economic policies and outcomes at the European Community (EC) level. Membership was not limited to countries that mimic the German commitment to price stability. National representatives may outvote inflation‐averse EC central bankers in monetary policy decisions. The Council of Ministers has the power to set exchange rate policy vis‐à‐vis third currencies. The treaty does not provide binding constraints against fiscal profligacy in member states. The German government agreed to this suboptimal outcome because in the wake of the demise of the Soviet Union and German unification it had broader political interests in maintaining the pace of European integration at Maastricht. The Bundesbank's policy of high interest rates in 1992, however, has effectively guaranteed a two‐speed monetary union, in which the first group of members will be limited to a narrow deutschemark zone. Given the waning enthusiasm for integration across the EC, the German government has no incentive to alter this outcome.

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