EMU without Britain: reasons for scepticism

This paper applies the theory of optimum currency areas to the question of which countries could be expected to be successful members of EMU if the monetary union does not include Britain, and is therefore led by the Bundesbank. Correlation matrices are prepared for potential members of EMU for recent years to see which countries would have tended to agree on a monetary policy and which would frequently disagree. The statistics strongly suggest that the Bank of England would be a far more successful leader of EMU than would the Bundesbank. Only Austria and the Netherlands have had macroeconomic cycles which closely follow those of Germany. Far more countries have had cycles which parallel those of Britain. With EMU being led by the Bundesbank, because Britain has not joined, the prospects for monetary union are quite poor.