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Will The Euro Bring Economic Crisis to Europe?

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  • Philip Arestis
  • Malcolm Sawyer

Abstract

It has been argued that the eurozone will face considerable economic difficulties. These will take a number of forms, two of which could qualify as "crises." First, the euro was launched at a time when unemployment levels were high (10 percent of the workforce) and disparities in the experience of unemployment and standards of living were particularly severe. These high levels of unemployment are likely to continue in the foreseeable future, and the policy arrangements that surround the operation of the euro, notably the objectives of the European Central Bank and the workings of the Stability and Growth Pact, will have a deflationary bias. These levels of and disparities in unemployment could be termed a crisis. Second, the introduction of the euro and the associated institutional setting could well serve to exacerbate tendencies toward financial crisis, including the volatility and subsequent collapse of asset prices and runs on the banking system. Some additional forces of instability may arise from the current trade imbalances and the relationship between the dollar and the euro as two major global currencies. Further, the operating arrangements of the European System of Central Banks can be seen as inadequate to cope with such financial crises.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_322.

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Date of creation: Feb 2001
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Handle: RePEc:lev:wrkpap:wp_322

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  1. Mark Holmes, 2000. "The Velocity of Circulation: Some new evidence on international integration," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(4), pages 449-459.
  2. Philip Arestis & Kevin McCauley & Malcolm Sawyer, 2000. "An Alternative Stability Pact for the European Union," Economics Working Paper Archive, Levy Economics Institute wp_296, Levy Economics Institute.
  3. Rudiger Dornbusch & Carlo A. Favero & Francesco Giavazzi, 1998. "The Immediate Challenges for the European Central Bank," NBER Working Papers 6369, National Bureau of Economic Research, Inc.
  4. Bernd Hayo, 2000. "The demand for money in Austria," Empirical Economics, Springer, Springer, vol. 25(4), pages 581-603.
  5. Katrin Wesche, 1997. "The Stability of European Money Demand: An Investigation of M3H," Open Economies Review, Springer, Springer, vol. 8(4), pages 371-391, October.
  6. Rudi Dornbusch & Carlo Favero & Francesco Giavazzi, 1998. "Immediate challenges for the European Central Bank," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 13(26), pages 15-64, 04.
  7. Funke, Michael & Hall, Stephen & Ruhwedel, Ralf, 1999. "Shock Hunting: The Relative Importance of Industry-Specific, Region-Specific and Aggregate Shocks in the OECD Countries," Manchester School, University of Manchester, University of Manchester, vol. 67(0), pages 49-65, Supplemen.
  8. Philip Arestis & Malcolm Sawyer, 1999. "The Economic and Monetary Union: Current and Future Prospects," Economics Working Paper Archive, Levy Economics Institute wp_282, Levy Economics Institute.
  9. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 13(26), pages 65-113, 04.
  10. Jürgen Wolters & Timo Teräsvirta & Helmut Lütkepohl, 1998. "Modeling The Demand For M3 In The Unified Germany," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 399-409, August.
  11. repec:sae:niesru:v:152:y::i:1:p:76-96 is not listed on IDEAS
  12. Karl-Heinz Tödter & Hans-Eggert Reimers, 1994. "P-Star as a link between money and prices in Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 130(2), pages 273-289, June.
  13. Antonio Fatás, 1998. "Does EMU need a fiscal federation?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 13(26), pages 163-203, 04.
  14. Ivo Arnold, 1994. "The myth of a stable European money demand," Open Economies Review, Springer, Springer, vol. 5(3), pages 249-259, July.
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Cited by:
  1. Jorg Bibow, 2002. "The Monetary Policies of the European Central Bank and the Euro's (Mal-)Performance: A stability-oriented assessment," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(1), pages 31-50.
  2. FIGUERA, Stephano, 2002. "La réforme du système monétaire international : une réflexion dans une perspective keynésienne," LATEC - Document de travail - Economie (1991-2003), LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS UMR 5118, Université de Bourgogne 2002-01, LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS UMR 5118, Université de Bourgogne.
  3. Francesco Carlucci & Alessandro Girardi, 2004. "National Specifities and Monetary-Policy Trasmission in Europe," Working Papers, University of Rome La Sapienza, Department of Public Economics 73, University of Rome La Sapienza, Department of Public Economics.
  4. Jörg Bibow, 2001. "The Monetary Policies of the European Central Bank and the Euro's (Mal)Performance: A Stability-Oriented Assessment," Macroeconomics, EconWPA 0109004, EconWPA.
  5. Alex Izurieta, 2001. "Can Countries under A Common Currency Conduct Their Own Fiscal Policies?," Macroeconomics, EconWPA 0108008, EconWPA.

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