Critics of EMU argue that monetary union only works in the US because of the big federal budget. This permits fiscal transfers between 'booming' and 'busting' regions of the country. Without such a relief valve in Eur-ope, detractors insist that monetary union will blow up the first time it is hit hard by a regional economic shock.

The US experience fails to support this argument. In the US, federal spending began to grow rapidly only as the US prepared to enter World War II. But the US has been a mon-etary union since 1866. So from 1866 to 1940 the US had a succ-essful monetary union, but the fed-eral budget was small as a percent-age of GDP. So much for the 'no fiscal relief valve' argument as to why EMU will fail.

Some EMU critics argue that the US system was not stressed enough to break it up during this period of low federal spending. In fact there were seven banking panics between 1873 and 1938 in one part of the country or another. These were often associated with recessions and included the Great Depression. But at no time was there any serious suggestion that the US should dissolve its monetary union.

But back then, goes another argu-ment, the US was mostly agricultur-al, so the nature of business cycles was quite different from that in Eur-ope today. In fact as early as 1890, manufacturing overtook farming as the main contributor to US GDP. By 1920 the US had become a man-ufacturing economy, subject to modern industrial business cycles.

There were other ways in which the US during the 1920s looked a lot like the nascent Euroland. It had a central bank (the US Federal Reserve Bank was established in 1913) with the power to regulate the money supply - just like the ECB. The US dollar floated against other currencies, as the euro will. The federal budget was a small portion of US GDP, just as in Euroland. Yet there was never a call for dis-solution of monetary union even during the Great Depression of the 1930s - though many blamed the slump on the excessive monetary squeeze engineered by the Fed.

We can learn another lesson from the US experience. For some 25 years until 1900, advocates of loose versus tight money embroiled the US in fierce debate. The growing west and reconstructing south lobbied for loose money, but realis-ed that economic chaos would en-sue if they seceded from monetary union and issued their own state bank notes, as was common practice prior to the Civil War.

The parallel here is that poorer or more rapidly growing European countries may someday feel similarly inclined. However, the architects of EMU anticipated the loose ('pro-growth') versus tight ('sound money') debate by ensuring that the ECB will be unusually free from political pressure. Hence the political debate over monetary pol-icy will be less relevant in Europe - and probably less strident - than it was in the US.