The European System of Central Banks (ESCB) led by the European Central Bank (ECB) will become operational when Stage III of Emu begins on January 1 1999. Member countries will irrevocably lock exchange rates, and interbank payments in euros will begin. There will be respite from Stage II instabilities: bilateral currency markets will no longer exist to batter policy goals.
Is this respite permanent or only the eye of the storm? Could Stage III itself be subject to an attack that forced a realignment of the "irrevocably fixed" exchange rates and a break-up of the system? The received wisdom is: no. The Maastricht Treaty, stability pact, and legal changes surrounding the organization of the ECB all set the fixed rates in concrete. A collapse in Stage III is equivalent to the withdrawal of an Emu member from its treaty commitments.
However, a realistic view of the centrifugal forces pulling against monetary union produces a less definitive answer. Sovereign regions at loggerheads over monetary policy could threaten monetary union. They would be affected differently by the economic shocks of business cycles and would thus have different preferences for secular inflation.