Abstract The paper focuses on the main policy issues facing a future EMU, in particular the determinants of inflation. Monetary union is a form of collusion among central bankers, which is clearly bad if it is compared with an ideal competitive scenario with independent central banks. We argue, however, that EMU could contribute to improving the quality of monetary policy in Europe. The greatest benefit from EMU stems from its potential as a commitment mechanism to price stability which many countries may not have available domestically. It is paramount that the European monetary authority be independent of the political system, in general, and the fiscal authorities, in particular. Unless EMU is interpreted as leading to political union in Europe, there is no need for any greater coordination or centralization of government spending in the monetary union. Fiscal coordination and centralization run contrary to the establishment of a low-inflation EMU because they weaken the relative strength and independence of the monetary authority. Finally, we reject the call for fiscal restraints in a EMU.