Background: The role and the impact of the dynamic cohesion forces is seldom addressed in economists discussions of the Eurozone and its performance. Several reasons can be indentified for this.
The first and perhaps the most important is that the concepts of “cohesion” are difficult to both specify exactly and, even if specified, to relate to the main workhorse of the monetary unions analysis - the optimum currency areas theory (OCA).
The second reason is that in the prevalent models of the global economy in the environment of reasonably unrestricted trade and capital flows, the differences in the levels of economic development, even if combined with the uniqueness of local cultures and traditions, are considered irrelevant.
And the third reason is that even defined, the “cohesion” always includes important social and political aspects, making many economists suspicious as far as the strict rigor of the positive economic analysis involving the “cohesion” considerations is concerned.
In the majority of economists’ analysis, the frequency and nature of shocks impacting the individual countries are the major factors determining the success of a monetary union. Starting with the seminal work of Robert Mundell (1961), economic writers analyzed varying roles symmetric and asymmetric shocks played in the optimality and a success of currency unions both theoretically (the optimum currency areas theory - OCA) and practically.
However, it is equally important for the success of a monetary union to analyze the longer term trends. This is especially so in the organization like EMU, where the monetary centralization operates in the environment of decentralized fiscal structures, no fiscal transfers between the participating entities (independent states) to speak of and very limited labor mobility.
In such an environment, the diverging trends between the participating entities (states) are unlikely to be compensated for by an induced factor movements and/or structural changes (not to mention fiscal transfers etc.), as happens in the similar dynamics within the centralized political entities (individual states).
Methods and Data: This paper endeavors to investigate the dynamics of basic macroeconomic variables in the EMU, looking both at general dynamics (which includes, inter alia, fiscal issues) and competitiveness. This dynamics is then evaluated against both the stability of the EMU as an institution but against the future challenges as well. Expected Results: Some possible scenarios of future developments are then developed and evaluated in both the EU context and the context of globalized world economy as well.