EMU: the (post-)crisis perspective. Literature survey and implications for the euro-candidates

This paper provides an extensive survey of literature on the euro area crisis from the perspective of a candidate country. A mix of country-specific and systemic factors emerge from our analysis, suggesting that a stable participation in the monetary union requires that both country-level and union-wide policies be applied. We demonstrate how the crisis developed since the inception of the EMU as a result of misspecified institutions, unhandled macroeconomic imbalances, neglected structural reforms, financial shocks and fiscal profligacy. We document the available empirical material and recent (or ongoing) institutional changes in order to better define the future euro area framework that new countries (with so-called derogation) shall enter at some point. Whatever final design emerges from this process, it has already become clear that they will adopt the euro in a package with entering some sort of fiscal union. The crisis has illustrated that deeper fiscal integration was a necessary condition for long-run stability, but at the same time the euro adoption will be associated with giving up more sovereignty than it has previously been expected. The new situation implies some serious shifts in relative importance of euro-costs and euro-benefits for the EA-newcomers, both on the upside and on the downside. It remains an issue for quantitative research to weight their relative impact against each other, but it seems that their conditionality on country-level macroeconomic policy largely exceeds the previous assessments.