Interdependecy and the EMU Outsiders

Pub. Date
30 November, 2000
Pub. Type

This paper studies the expected impact of EMU membership on the non-EMU states in Northern Europe, and the economic interdependency of these states. It is often argued that once one of the non-EMU states joins EMU, pressure will increase upon the remaining ones to follow. This study considers the economic interdependency of the UK, Sweden and Denmark and assesses the extent to which a 'yes' vote by one actor will affect the decision making process in the other two states from an economic perspective. The paper undertakes a series of simulations to address the monetary shock associated with joining EMU, the impact of EMU membership on fiscal policy effectiveness, and the impact of EMU on volatility. We find that the three states are not as interdependent as commonly assumed, and that the decision to join EMU in each country can more or less be taken on a unilateral basis.