Letter from the editor

• Author: Ian S. McDonald
• Position: Editor-in-Chief

January 1, 1999 will mark a historic moment in international monetary cooperation as the European Economic and Monetary Union (EMU), an area with an economy equal to that of the United States, is born. On that date, 11 of the European Union's 15 member countries will lock their exchange rates; the common currency, the euro, will come into being; and national authorities will hand over the responsibility for monetary and exchange rate policies to area-wide institutions. Several articles in this issue of Finance & Development consider the wider significance of this epochal event. In the first, Michael C. Deppler discusses the implications of EMU for the IMF's surveillance activities. Some of the major policy challenges facing the euro area in maintaining growth and curbing unemployment are examined by Klaas Knot, Donogh McDonald, and Karen Swiderski. The impact of EMU on the other economies of Western Europe and on other countries is analyzed by John Green and Phillip L. Swagel, while Alessandro Prati and Garry J. Schinasi address the issue of ensuring financial stability within EMU.

One of the most striking developments of recent years has been the growth of international financial transactions and international capital flows. This has brought substantial benefits, but it is not without risk. In their article, Barry Eichengreen and Michael Mussa emphasize that capital account and financial liberalization are inevitable for countries that wish to...