... but steadily decreased by more than 30% to E1 = $0.87 but increased to E1 = $1.08 in 2002 and in Feb 04 is standing at E1 = $1.28! Convergence criteria * Inflation not to exceed average of inflation in the 3 lowest inflation countries by 1.5%. * Interest on long-term government bonds must not exceed 2% of average interest rates of countries with the 3 lowest inflation rates. * Govt deficit to be no more than 3% of GDP * Govt debt to GDP ratio not to exceed 60% * FX rates must have been fixed within the narrow ERM band without alignment for more than 2 years. Cost and Benefits of Monetary Union * EU has estimated economic benefits to be approx. 10% of EU GNP * Eliminate transaction costs of FX; estimated at 0.5% of EU GNP * Elimination of FX risk within EU * Benefits of greater monetary stability Resource allocation should improve as prices more accurately reflect ...

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