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integration to date has on balance contributed positively to the constructive evolution of the international monetary system and whether it is likely to continue to do so. To help answer this question, I would like to pose, and attempt to answer, four subsidiary questions. How strong has the connection been between European monetary integration and the evolution of the international monetary system? Will the introduction of the euro on January 1, 1999, be a step toward the restoration of a global system of fixed exchange rates? What are the implications of European

International Monetary Fund
The paper argues that international differences in fiscal conditions influence the relative attractiveness of locating production facilities in different countries and could prove to be a troublesome source of instability for the European economies. Even though physical capital movements tend to occur slowly, divergent fiscal conditions can exert pressures on exchange rates in the short run, and the monetary policy reactions induced in a fixed exchange rate regime may affect real wage rates and/or employment levels. The implications for tax harmonization and budget discipline are discussed. It is argued that monetary integration itself will not induce fiscal discipline.
International Monetary Fund

question of how much the success of European monetary integration may depend on the harmonization of tax codes and on fiscal budgetary discipline. To suggest that this issue needs serious attention is not to suggest that it has been overlooked. The academic literature of the early 1970s gave some attention to the issue, 2/ and fiscal policy issues in general have been receiving an increasing share of attention in analytic work on the European Monetary System. 3/ Moreover, the discussion of monetary integration by the Commission of the European Communities and its