European Economic and Monetary Integration

Martin Höpner

In order to work smoothly, fixed exchange rate regimes require convergent wage and price inflation among their members. But all European currency orders after World War II consisted of very heterogeneous country groups. The project explores the implications of this heterogeneity for European monetary integration. It specifically focuses on Germany, which produced lower inflation rates than its trading partners throughout all respective currency orders and thereby profited from competitive undervaluation. The project analyzes how the diversity of inner-European wage regimes contributed to the distortion of real exchange rates. It also asks whether the problem may be solved by exporting the German wage determination model or by European-wide wage coordination.