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Political Economy of the Euro Area Crisis

Author

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  • Casimir Dadak

Abstract

For many experts the true motivation behind the introduction of a single currency in Europe is political rather than economic. This view is based on the fact that the euro area does not constitute an optimal currency area and, therefore, the costs of monetary integration are likely to outweigh the benefits. In particular, the loss of control over monetary policy and exchange rates make overcoming asymmetric demand-side shocks very painful. Moreover, the monetary union lacks a common fiscal authority that could help in smoothing out business cycles. The present crisis exposed these vulnerabilities and, unfortunately, so far economic policies adopted in the region have failed to rectify these shortcomings. Key words: European monetary union, Optimum currency area, Asymmetric shocks, Fiscal and monetary stabilization policies.JEL: F59, E63, O52.

Suggested Citation

  • Casimir Dadak, 2011. "Political Economy of the Euro Area Crisis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(5), pages 593-604.
    • Handle: RePEc:voj:journl:v:58:y:2011:i:5:p:593-604:id:332
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    More about this item

    Keywords

    European monetary union; Optimum currency area; Asymmetric shocks; Fiscal and monetary stabilization policies;
    All these keywords.

    JEL classification:

    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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