Government-financial market relations after EMU: New currency, new constraints?

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29 Scopus citations


The European Monetary Union (EMU) has generated a variety of changes, including the loss of national monetary policy autonomy and the creation of deeper integrated intra-European markets for goods, services, and financial instruments. This article explores the extent to which EMU has changed the ways in which and the extent to which international financial markets influence national policy choices. There are important reasons to expect that financial markets exert greater influence on governments after EMU; for instance, governments now borrow in what is essentially a foreign currency. This change might serve to heighten the perceived danger of default in Europe. At the same time, however, financial markets appear to reward governments for the fiscal consolidation and increased market liquidity that flow from the single currency. I argue that, as a result of these offsetting trends, there have thus far been no dramatic changes in financial market-government relations. Although governments continue to face external pressures on domestic policy-making, these pressures may be only slightly more severe for EMU than for non-EMU countries. As in the past, domestic politics and institutions will be as important as, if not more important than, financial market pressures in EU governments' policy decisions.

Original languageEnglish (US)
Pages (from-to)181-209
Number of pages29
JournalEuropean Union Politics
Issue number2
StatePublished - Jun 2004
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Health(social science)
  • Demography
  • Political Science and International Relations


  • EMU
  • Financial globalization
  • Government bond market
  • International capital markets
  • Stability and Growth Pact
  • Sweden


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