Introduction:

The creation of the European Monetary Union (EMU) on the first of January 1999 marks a structural break for the member countries of the union. Monetary policy was transferred to the European Central Bank (ECB) and even more important, nominal exchange rate adjustments became no longer possible. Usually, at least in history, monetary unions and states are identical. The process of creating a European constitution is stuck and even if the European Union (EU) succeeds in ratifying a constitution, it will not be comparable to the constitution of a usual state. The budget of the central level of the EU compared for example with the budget of the federal state in the United States, a not very centralised country, is minuscule and has only about the volume of the budget of a larger German regional state. There are for example no taxes directly levied by the EMU centre. Tax systems, social security systems, labour market institutions and wage bargaining processes are markedly different in the different EMU countries. Overall the EMU is a unique historical experiment with the chance to create a prosperous and politically strong Europe but also with the danger to become a monetary union with deep regional problems, economic stagnation and political instability.

In the second section we discuss the problems of regions in a monetary union to regain inter-regional competitiveness. The third section covers different regional constellations. The structure of labour market institutions in selected EMU countries as well as the functionality of their wage developments is analysed in section four. In the fifth section the overall regional development in selected EMU countries is analysed. The last section draws conclusions.