"The article suggests an explanation for seemingly diverse patterns of change in domestic economic institutions following the establishment of Economic and Monetary Union (EMU). It argues that EMU participants redesigned ill-fitting domestic fiscal and wage-setting institutions in order to counter the anticipated destabilizing effects of the ‘one size fits all' monetary policy of the European Central Bank (ECB). After outlining the argument, the article identifies general economic and institutional conditions that are required for the use of fiscal and wage-setting institutions as effective stabilizers in a monetary union. It then undertakes a comparative assessment to detect country-specific mismatches between anticipated needs and the available domestic economic institutions. Finally, the article surveys institutional changes in 10 member states between the mid 1990s and 2002 and shows that the observed institutional adjustments largely correspond to the expected correction of initial mismatches."

Support: Digital