The impact and desirability of the European Monetary Union is the object of much debate among economists and policy makers. The abandonment of flexible exchange rates along with monetary policy autonomy has potential benefits that can only be realized at the cost of imposing limits on country specific stabilization policy. The magnitude of these costs and benefits depend on the relative strengths of alternative transmission mechanisms for both real and monetary shocks throughout the euro zone. Eijffinger and de Haan (2000, p.147), summarizing the debate, argue that qualitatively, these channels differ widely among countries.

National structures differ within Europe because of differences in consumption patterns and production specialization. Financial structures also differ widely across countries some countries have well developed and relatively efficient stock markets and financial institutions, while other countries rely heavily on information intensive or collateral based lending reflected in their national banking systems. Given this diversity across product markets and financial markets, it seems likely that exogenous shocks will have different impacts in the various member states composing the euro zone. In the presence of such heterogeneity, one needs to carefully consider whether or not a common currency amplifies or dampens the destabilizing influences of real and monetary shocks.