Developments towards the monetary union and the possible effects of the introduction of a common currency

ABSTRACT Monetary Integration is composed of exchange rate union and capital market integration, requires harmonisation of monetary policies, a common pool for foreign exchange reserves and a common central bank. The purpose of this study is to explain the possible effects, advantages and disadvantages of a monetary union for the European Union (EU) as well as for the countries such as Turkey which have close links with the Union. The Introduction of the EURO is one of the major developments in the International Monetary System. Depending on the size of the EURO area, applied economic policies may affect non-member countries especially through the interest rate and exchange rate changes. Consequently, EMU may create an area whose economic potential will be comparable to that of the USA. Beside its close economic and commercial links with the EU, Turkey set up customs union with the Community in 1996 and has been one of the candidate countries to the membership since 1999 Helsinki Summit. Therefore, it might be expected that, EURO will affect Turkey in many respects like borrowing possibilities, capital transactions and foreign trade. This study includes four chapters. In the first chapter it is aimed to explain, economic and monetary integration in theory. In the second chapter, the monetary integration process in Europe, and the effects and features of European Monetary System are explained. The third chapter of this study treats of the institutional structure, mechanisms and politics, which are formed after the introduction of EURO in EMU. In the fourth chapter, it is aimed to explain, the possible effects of the EURO to the financial markets, prices, labour markets, etc. in EMU and to non-member countries such as Turkey. VI