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Establishing a single currency will launch the EU on a journey into the unknown. Thus while it is widely accepted that the fall-out from this decision will be far-reaching, little consensus exists on the impact on particular policy arenas. This article explores some of the main implications of monetary union for Social Europe-national systems of welfare pro vision and employment regulation. It is argued that efforts by virtually all the member states to meet the Maastricht criteria for joining the single currency club are impacting negatively on Social Europe. Moreover, with the member states signing a deflation-oriented Stability Pact, this cold climate threatens to spill over into the actual operation of the new Euro- zone. Thus the road to monetary union paved by Europe's political elite spells bad news for already beleaguered welfare and employment systems. At the same time, the article argues that a different form of monetary union is necessary to create more robust macroeco nomic foundations to Social Europe. At present, it is suggested that a big coordination deficit has emerged inside the European economy, causing an inhospitable environ ment for the social dimension in the absence of a single currency. Thus retreating to national mechanisms for economic management is rejected as an alternative project to the Maastricht plan for monetary union. Finally, the article investigates the viability of various reform paths to make the new Euro-zone more socially friendly.

No doubt the monetary measures taken by the Government of the Federal Republic on May 10 have caused quite a stir. The question is: Can the European economic and monetary union still be achieved, in spite of the German measures?

In the aftermath of the global financial crisis, sovereign default risk and the zero lower bound have limited the ability of policy-makers in the European monetary union to achieve their stabilization objective. This paper investigates the interaction between sovereign default risk and the conduct of monetary policy, when borrowers can act strategically and they share with their lenders a single currency in a monetary union. We address this question in an endogenous sovereign default model of heterogeneous countries in a monetary union, where the monetary authority may be constrained by the zero lower bound. We uncover three main results. First, in normal times, debtors have a stronger incentive to default to induce more expansionary monetary policy. Second, the zero lower bound, or constraints on monetary policy may act as a disciplining device to enforce repayment of sovereign debt. Third, sovereign default risk induces countries with a preference for tight monetary policy to accept a laxer policy stance. These results help to shed light on the recent European experience of high default risk, expansionary monetary policy and low nominal interest rates. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.