Design Failures in the Eurozone: Can they be fixed?
AbstractI analyse the nature of the design failures of the Eurozone. I argue first that the endogenous dynamics of booms and busts that are endemic in capitalism continued to work at the national level in the Eurozone and that the monetary union in no way disciplined these into a union-wide dynamics. On the contrary the monetary union probably exacerbated these national booms and busts. Second, the existing stabilizers that existed at the national level prior to the start of the union were stripped away from the member-states without being transposed at the monetary union level. This left the member states “naked” and fragile, unable to deal with the coming national disturbances. I study the way these failures can be overcome. This leads me to stress the role of the ECB as a lender of last resort and the need to make macroeconomic policies more symmetric so as to avoid a deflationary bias in the Eurozone. I conclude with some thoughts on political unification.
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Bibliographic InfoPaper provided by European Institute, LSE in its series LEQS – LSE 'Europe in Question' Discussion Paper Series with number 57.
Date of creation: Feb 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-02 (All new papers)
- NEP-EEC-2013-03-02 (European Economics)
- NEP-PKE-2013-03-02 (Post Keynesian Economics)
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- Delbecque, Bernard, 2013. "Proposal for a Stabilisation Fund for the EMU," CEPS Papers 8494, Centre for European Policy Studies.
- Magnus G. Schoeller, 2014. "Explaining Political Leadership: Germany’s Role in Shaping the Fiscal Compact," EUI-RSCAS Working Papers p0396, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
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