Abstract
In the absence of rules, free-riding budgetary behaviour would push up interest rates in the area as a whole. The architecture of EMU would raise the question of Stackelberg leadership in a potentially damaging and unstable monetary-budgetary game. (The ECB is not the Bundesbank). As there is no fiscal union, an ultimate choice between excessive ECB ease to help the weakest country or default by one country appears possible.
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