EMU: The Sustainability Issue
AbstractThe euro area is experiencing a sovereign debt crisis; as a result, the foundations of its monetary union have been shattered. This crisis, which is an extension of an international financial crisis, shows that the European Union is not an optimum currency area. Robert Mundell’s work remains an indispensable reference on this subject: a monetary union among greatly different countries and propelled by considerably weak solidarity is problematic. In the present context, the possibilities are limited for permanently improving the situation, for transforming sovereign debts into sustainable ones, and for regaining a higher level of growth. Experience seems to show that a single currency cannot accommodate national budgetary policies and that national policies are hindered by the existence of a single currency in a context of asymmetries. Eventually, a scenario where the euro area would collapse becomes highly probable. This paper puts forward a model of debt sustainability and discusses eight related proposals.
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Bibliographic InfoPaper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-196.
Length: 12 pages
Date of creation: 28 Mar 2014
Date of revision:
European Monetary Union; European Central Bank (EBC); Eurozone; Stability growth pact; Financial crisis; Fiscal policy and debt sustainability; Optimal currency area; Sovereign debt;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-11 (All new papers)
- NEP-CBA-2014-04-11 (Central Banking)
- NEP-EEC-2014-04-11 (European Economics)
- NEP-GER-2014-04-11 (German Papers)
- NEP-MAC-2014-04-11 (Macroeconomics)
- NEP-MON-2014-04-11 (Monetary Economics)
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