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On optimality or non-optimality of the eurozone

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  • Tomasz Brodzicki

    ()
    (Faculty of Economics, University of Gdansk)

Abstract

Economic and Monetary Union is an unprecedented event in the monetary history of Europe. The eurozone since its creation 13 years ago expanded to 17 Member States and functioned relatively smoothly up to the outset of the global financial crisis. Only the severity of the subsequent eurozone crisis showed the actual scale of structural, institutional and governance problems it had. The differences between its core and peripheral regions became more than evident. In the present paper we discuss the optimality of the existing and the enlarged eurozone. Despite of the progress made, eurozone is far away from meeting the OCA criteria. Further enlargements, by increasing the overall internal diversity of the union, are likely to increase the gap. It seems however that even non-optimal monetary unions may function but at a significantly higher costs. In some cases the long term costs could even outweigh the benefits. The nominal convergence criteria are only partially consistent with the OCA theory, they are largely arbitrary and should be modified in the interest of the present eurozone as well as of acceding states.

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File URL: http://gnu.univ.gda.pl/~keie/aio25.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Economics of European Integration Department, Faculty of Economics, University of Gdansk, Poland in its series Working Papers with number 1201.

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Length: 22 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:gda:wpaper:1201

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Keywords: eurozone; optimum currency area; economic and monetary integration; EMU; Maastricht criteria;

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  1. Ricci, Luca Antonio, 2008. "A Model of an Optimum Currency Area," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(8), pages 1-31.
  2. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Monetary and exchange rate arrangements for NAFTA," Journal of Development Economics, Elsevier, vol. 43(1), pages 125-165, February.
  3. Kenen,Peter B., 2000. "The International Economy," Cambridge Books, Cambridge University Press, number 9780521644358, April.
  4. Alberto Alesina & Robert Barro & Silvana Tenreyro, 2002. "Optimal Currency Areas," Harvard Institute of Economic Research Working Papers 1958, Harvard - Institute of Economic Research.
    • Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356 National Bureau of Economic Research, Inc.
  5. Michael D. Bordo, 2003. "Exchange Rate Regime Choice in Historical Perspective," IMF Working Papers 03/160, International Monetary Fund.
  6. Hugh Rockoff, 1999. "How Long Did It Take the United States to Become an Optimal Currency Area?," Departmental Working Papers 199910, Rutgers University, Department of Economics.
  7. Bordo, Michael D. & Jonung, Lars, 2000. "A Return to the Convertibility Principle? Monetary And Fiscal Regimes in Historical Perspective," Working Paper Series in Economics and Finance 415, Stockholm School of Economics.
  8. Michael D. Bordo & Lars Jonung, 1999. "The Future of EMU: What Does the History of Monetary Unions Tell Us?," NBER Working Papers 7365, National Bureau of Economic Research, Inc.
  9. Ignazio Angeloni & André Sapir, 2011. "The international monetary system is changing: what opportunities and risks for the euro?," Working Papers 632, Bruegel.
  10. George Tavlas, 1994. "The theory of monetary integration," Open Economies Review, Springer, vol. 5(2), pages 211-230, March.
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