Europe's monetary union is part of a broader process of integration that started in the aftermath of World War II. In this political guide for economists we look at the creation of the euro within the bigger picture of European integration. How and why were European institutions established? What are the goals and determinants of European Integration? What is European integration really about? We address these questions from a political-economy perspective, building on ideas and results from the economic literature on the formation of states and political unions. Specifically, we look at the motivations, assumptions, and limitations of the European strategy, initiated by Jean Monnet and his collaborators, of partially integrating policy functions in a few areas, with the expectation that more integration will follow in other areas, in a sort of chain reaction towards an ever-closer union. The euro with its current problems is a child of that strategy and its limits.
European integration monetary union heterogeneity functionalism