The Design Faults of the Economic and Monetary Union

2010

The financial crisis and recession have highlighted a range of problems with the 'euro project', but these problems and difficulties are related to some fundamental issues for the euro. The convergence criteria established by the Maastricht Treaty focused on nominal rather than real variables, failed to relate to issues such as current account positions. There are well-known difficulties of macroeconomic policies under the Stability and Growth Pact including its deflationary nature and the 'one size fits all problem' of imposing common deficit requirements on all countries. The economic performance of the eurozone countries is briefly reviewed with attention paid to the differential inflation rates; also accounted for are the changes in competitiveness as well as the current account deficits, and their implications for the future of economic performance within the eurozone, and the euro itself. The patterns of current account deficits and surpluses are linked with unemployment, lack of competitiveness and budget deficit issues. The nature of the reforms to the operations of the eurozone is examined. The political limits (including those arising from the nature of the Treaty of Lisbon) and the ideological constraints (associated with the neo-liberal agenda) on serious reforms are discussed from which the general conclusion is that the needed reforms will not be carried through. This discussion also includes consideration of the possible role for a substantial EU-level fiscal policy and some other aspects of political union. It is argued that the deep-seated problems are unlikely to be resolved, casting a dark shadow over the future of the euro.

Financial Crisis, Labour Markets and Institutions

The ongoing crisis of the eurozone is calling its continued existence into doubt, and raising questions on whether it can function effectively. The view of the nature of the eurozone crisis as arising from 'design faults' of the Economic and Monetary Union and a balance of payments crisis with large current account imbalances between countries is developed. The policy remedies (in the form of the 'fiscal compact') which are being put into place will not work in their own terms and will make the economic performance of the eurozone countries worse. Some Keynesian remedies for the crisis in terms of alternative policy proposals for the operation of the Economic and Monetary Union are outlined.

China-USA Business Review, 2016

This paper deals with the stability of the euro since its inception and the structural weaknesses in the allocation of responsibility for monetary and fiscal policy in particular. Recent events reflect those weaknesses and, as a result, the survival of the euro zone in its current configuration is threatened. This paper examines the stability of the euro zone by focusing on interest rates [more specifically, the risk premia in the various troubled European Monetary Union (EMU) countries] and their determinants, and the stability of these premia which affect the price of government bonds. The conclusion is that the bond markets are quite unstable and that the instability was caused by budget profligacy. This paper looks at the entire period since the inception of the euro which covers the financial crisis of 2008 and beyond and asks whether moral hazard and the free rider problems in fiscal policy and the markets for sovereign debt have contributed to the current crisis. This includes examining the determinants of the risk premiums in the various countries making up the EMU, focussing on variables that are in the Maastricht Treaty charter such as budget deficits, cumulative debt in relation to GDP, rates of inflation, and monetary variables. The conclusion is inescapable: One cannot run a country or a union with 19 finance ministers where many have set aside the convergence criteria, and with a monetary policy that accommodates the extreme needs of some members instead of dealing decisively with serious structural problems that EU and the EMU especially, face. This paper examines the economic relationships in the troubled countries of the EMU in order to draw some lessons for policy makers.

Junior Scientific Researcher, 2020

Over time, the lack of a well-defined direction has made the project on which the entire functioning of the euro area and the European Union are based has undergone various transformations. The defaults of defining and functioning of the European Monetary Union have led to financial crises of the European single currency. The future of the European Monetary Union is uncertain at the moment. In order to avoid any new crisis in the euro area, politics should focus on synchronizing the economies of the member states and redefining the European project. The purpose of this article is to identify the dysfunctions of the Eurozone and to formulate possible solutions for a deeper European integration. To achieve this goal, we need to reach a number of objectives that help us to conclude: to analyze the malfunctions that emerged in defining the European project, to analyze the dysfunctions that led to the emergence of crises inside the euro area and to identify a possible scenario to deepen ...

1996

This paper explores under what conditions a European Monetary Union (EMU) is an optimum currency area. The scope for an EMU increases with convergence of structural and fiscal policies, small money holdings, a conservative European Central Bank, and dependent national central banks. How national policies affect the rest of the union once the EMU has been formed is also investigated. The case for surveillance of national structural and fiscal policies appears to depend largely on monetary arrangements in the union.

2015

This paper argues that fiscal convergence in the Euro area has been achieved at the expenses of real divergence in unemployment, investment and at, at least temporarily, growth. Statistical and econometric analysis support the view that the current fiscal framework has addressed debt sustainability concerns, but has imparted a pro-cyclical bias, which has contributed to economic divergence. The recent flexibility guidelines are a step in the right direction, but they are unlikely to have sizable effects. A reform of the fiscal framework and a mechanism for an intra-European unemployment insurance scheme is proposed.

Austral: Brazilian Journal of Strategy and International Relations, 2012

embarked on the penultimate step in this progression. But only half of it-a monetary union without a fiscal union. The Euro-crisis has now called that achievement into question and, in the process, undermined the authority of those espousing a European route towards closer integration, both for themselves as well as for other nations. As a convinced federalist, myself, I would not recommend abandoning the European example altogether, but if there is a lesson to be learned from this sorry episode, it is this: "if you are going to do it, do not do it this way". This article examines the European experience with economic and monetary union from three perspectives-the design, the implementation and the management of the euro-before exploring the implications of the current crisis.

This paper examines the European Monetary Union (EMU) and the euro crisis through the lens of a robust political economy. Based on the history of monetary unions, monetary union is unlikely to survive without a fiscal union or strong constitutional constraints. The EMU has neither, and its institutional structure makes it unsustainable. Since the euro was (and is) fundamentally a political – rather than economic – project, we argue that policymakers will not allow the EMU to fail. Rather, continued movement towards greater EU-level fiscal, and ultimately a fiscal union, are likely.