By Edward George, the Governor of the Bank of England.
The Governor of the Bank, Eddie George, discusses the potential economic benefits and risks of greater monetary integration. He argues that the economic case for greater integration within Europe is an application of the wider argument for free trade. The Governor notes that, while monetary integration within Europe is not a requirement in order to derive the substantial benefits of the single market, it is important to consider how far it can increase the benefits of the single market, and at what cost. It is beyond doubt that the single market would work better in an environment of reasonably stable intra-European real exchange rates, but the issue is how best to bring that about. The Governor considers this issue in relation to both the ERM and monetary union, noting that the latter would represent a much more powerful discipline on the participating economies, but also involve greater risks if they had not converged at the outset or if they subsequently became subject to serious country-specific economic shocks.