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The Euro and European Economic Conditions

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  • Martin S. Feldstein

Abstract

The creation of the euro should now be recognized as an experiment that has led to the sovereign debt crisis in several countries, the fragile condition of major European banks, the high levels of unemployment, and the large trade deficits that now exist in most Eurozone countries. Although the European Central Bank managed the euro in a way that achieved a low rate of inflation, other countries both in Europe and elsewhere have also had a decade of low inflation without incurring the costs of a monetary union. The emergence of these problems just a dozen years after the start of the euro in 1999 was not an accident or the result of bureaucratic mismanagement but the inevitable consequence of imposing a single currency on a very heterogeneous group of countries, a heterogeneity that includes not only economic structures but also fiscal traditions and social attitudes. This paper reviews (1) the reasons for these economic problems, (2) the political origins of the European Monetary Union, (3) the current attempts to solve the sovereign debt problem, (4) the long-term problem of inter-country differences of productivity growth and competitiveness, (5) the special problems of Greece and Italy, (6) and the pros and cons of a Greek departure from the Eurozone.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17617.

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Date of creation: Nov 2011
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Handle: RePEc:nbr:nberwo:17617

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Cited by:
  1. Christian Keuschnigg, 2012. "Should Europe Become a Fiscal Union?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(1), pages 35-43, 04.
  2. Wall, Larry D., 2012. "Central Banking for Financial Stability: Some Lessons from the Recent Instability in the United States and Euro Area," ADBI Working Papers 379, Asian Development Bank Institute.
  3. Larry D. Wall, 2012. "Central banking for financial stability Some lessons from the recent instability in the US and euro area," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 8(3), pages 247-280, August.
  4. Keuschnigg, Christian, 2012. "Welche Finanz- und Wirtschaftspolitik braucht Europa?," Economics Working Paper Series 1201, University of St. Gallen, School of Economics and Political Science.
  5. Schilirò, Daniele, 2012. "The crisis of euro’s governance: institutional aspects and policy issues," MPRA Paper 40861, University Library of Munich, Germany.

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