Maastricht Games and Maastricht Contracts

Abstract

This paper characterizes the Maastricht transaction as a deal that trades the replacement of the Bundesbank by a European Central Bank at the centre of European monetary affairs as a reward for prior convergence. Several potential inefficiencies of this transaction are explored and we ask how they are addressed by the provisions of the Maastricht Treaty. We find that the Treaty serves as a contract device that provides commitment to cooperative outcomes, sets incentives for cooperative behaviour and determines the timing and procedures for decisionmaking and bargaining.