EMU: three challanges

The European monetary union (EMU) is dealing with domestic policy challenges. Inflation has been mildly above target almost since the beginning of EMU. In those circumstances, fiscal policy is effectively set to counteract the monetary stance. Furthermore, related to the domestic imbalances is the issue of global imbalances centered on the United States. The most likely way to unwind these imbalances is by a depreciation of the dollar as investors diversify out of the United States' assets. EMU is largely about getting the institutional frameworks right for domestic policy co-ordination, for taking a coherent role in global economic policymaking and managing enlargement.