The book "starts with the contribution of Jürgen Kromphardt on the occasion of the 10th anniversary of the research network. Kromphardt compares two different branches of macroeconomics, based on the Walrasian and the Marshallian / Keynesian approach, and concludes that only the latter justifies measures of active demand policy. Consequently, the term ›macroeconomic policy‹ should be restricted to policies based on Marshallian / Keynesian theory and consequently there are no ›alternative‹ macroeconomic policies. Kromphardt nevertheless is sceptical about the survival of macroeconomic theory at German universities and strongly supports the research network as a medium to present, discuss and publish the outcome of macroeconomic research.

The first thematic part of the book treats the theoretical aspects of currency unions and practical experiences in the European Monetary Union (EMU). It starts with Jan Priewe's review of the early and later theories of optimum currency area. Priewe elaborates several points of criticism to those theories, e. g. that ›currency area‹ is a vague term which may denote currency cooperation as well as a full-fledged currency union, that the criterion of asymmetric shocks neglects supply shocks which reflect specific institutional characteristics of the countries, and that real convergence as a necessary condition for a currency union is underestimated. He particularly criticises that the issue whether or not a monetary union requires a political union is not addressed. He concludes that currency areas with strong economic and political heterogeneity are likely to lead to divergences between the members and to a sub-optimal overall performance. Claudio Sardoni and Randall Wray provide an analysis of Keynes's original proposal of the ›Bancor‹ as well as more recent proposals regarding fixed exchange rate regimes. These proposals are contrasted with their own concept of ›currency sovereignty‹, which implies the possibility for the application of independent monetary and fiscal policies. Necessarily, this ability depends on the adoption of flexible exchange rates. In their opinion, a regime of flexible exchange rates would have produced a more viable and dynamic European economic system. Alternatively, the Euro area needs to create a fiscal authority compared to the US Treasury, which would imply the shift of national authority to a central government.

Subsequently, a series of papers analyse the causes and effects of divergent developments within the EMU. Charles Goodhart opens this subject by arguing that the lack of flexible labour markets and of a federal fiscal system within the Euro area inhibit the adjustment to asymmetric shocks. He shows that relative unit labour costs have diverged and thus have worsened relative competitiveness of some countries, which puts the Euro area under the threat of further drifting apart. Jan Priewe also analyses the economic divergences within the Euro area and the problems linked to these developments. He identifies divergent unit labour costs, inflation differentials which cause real interest differentials, and diverging current account balances as the main risks for the functioning of the currency union. He also shows that the mechanisms of self-correction are working slowly and as a result growth and employment are dampened. The prevention of these divergences according to Priewe requires centralised fiscal policy as well as active coordination of fiscal, monetary and wage policies and thus a step towards a political union. Hansjörg Herr and Milka Kazandziska take the same line and also emphasize the need for the European Union (EU) to become more integrated with regard to fiscal policy, tax and social security systems, labour market institutions and wage bargaining processes. In their opinion the currency union is a chance to create a prosperous and politically strong Europe but also runs the risk of regional problems, economic stagnation and political instability. In a country study of Italy Stefan Solari and Claus Thomasberger find that the channels which are supposed to correct these imbalances, namely wage and price fl exibility, do not work properly. Instead, a self-reinforcing process of divergence is in place. A second country study by Jesus Ferreiro, Carmen Gómez and Felipe Serrano investigates the room for expansionary economic policy in Spain.

In the third part of the book, aspects of economic policy in the EMU are discussed. According to Danny Lang, the NAIRU (Non Accelerating Inflation Rate of Unemployment) is one of the basic concepts for the current economic design of the European Union. He summarizes the old NAIRU models as well as the new developments in the NAIRU literature in order to determine if the newer models have solved the main flaws of the old concept. He concludes that recent innovations of the NAIRU concept have raised more problems than solved. Thus the EU cannot reasonably continue relying any longer on such a fragile concept. Angel Asensio focuses on fiscal and monetary interactions within a two country monetary union. His main findings are that heterogeneity within the Euro zone is likely to enforce adverse interactions and makes the policy mix less efficient. This could be avoided if monetary policy concentrates on common effects of shocks while fiscal policy counters the country-specific effects. Felix Geiger and Peter Spahn analyse the ability of monetary policy to reduce divergences between EMU member states. Divergences mainly result from the dominance of the real interest effect over the exchange rate effect. National cycles become detached from macroeconomic conditions on the EMU level, thus national fiscal policy regains responsibility for stabilisation purposes. Jörg Bibow assesses the performance of the European Central Bank (ECB) since 1999. The key finding is that the ECB has played a key role for the weak economic performance of the Euro area at the beginning of this period and currently seems to repeat their errors by cutting off pre-emptively the recovery which it has done for little to start in the first place. The book concludes with a paper by Philip Arestis and Malcolm Sawyer, who give their perspectives on economic policy in the EU. They argue that the objectives of full employment and sustainable and equitable economic growth would require the use of macroeconomic policies. Monetary and fiscal policies, as they are currently implemented in the EMU are found problematic.

The main improvements proposed by the authors are the full co-ordination of fiscal, monetary and exchange rate policies. In order to implement these policies, a number of institutional changes must take place.

Each paper highlights a specific point of analysis; consequently, the contributions are both complementary and controversial, thus providing a diff erentiated picture of the respective topics. Although the reader may find that sometimes the papers are not very interconnected or repeat each other, everybody who is interested in macroeconomic policy and European integration should find a lot of inspiring aspects for discussion and further research in this book."