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Is the Eurozone not a monetary union, but an extraordinary exchange rate union?

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  • Sauer, Beate
  • Sell, Friedrich L.
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    Abstract

    The Target imbalances within the Eurozone can be interpreted as a sign of a missing balance of payments adjustment mechanism for the member countries. As the Eurozone lacks a fiscal union, in economic theory it is more an exchange rate union or a system of fixed exchange rates than a monetary union. In the latter, there would not be any national balances of payments, but only one for the whole Eurozone. This paper will show why the Target System is a crucial indicator for the Eurozone not being a monetary union, but an exchange rate union and why countries holding Target liabilities against the European System of Central Banks can be compared to a reserve currency country, e.g. like the US during the Bretton-Woods-System. --

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    Bibliographic Info

    Paper provided by Universität der Bundeswehr München, Economic Research Group in its series Working Papers in Economics with number 2013,2.

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    Date of creation: 2013
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    Handle: RePEc:zbw:ubwwpe:20132

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    Keywords: Target Imbalances; Balance of Payments Crisis; Balance of Payments Adjustment Mechanism; Eurozone; Fixed Exchange Rates; Fiscal Union;

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    References

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    1. Silvia Merler & Jean Pisani-Ferry, 2012. "Sudden stops in the euro area," Policy Contributions, Bruegel 718, Bruegel.
    2. Friedrich L. Sell & Beate Sauer, 2012. "Money, Capital Markets and Welfare: An Analysis of the Effects of Target2 Balances," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 55-62, 02.
    3. Sell, Friedrich L. & Sauer, Beate, 2011. "A further view on current account, capital account and Target2 balances: Assessing the effect on capital structure and economic welfare," Working Papers in Economics 2011,2, Universität der Bundeswehr München, Economic Research Group.
    4. Aaron Tornell & Frank Westermann, 2012. "Greece: The Sudden Stop That Wasn’t," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 102-103, 02.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, American Economic Association, vol. 100(2), pages 573-78, May.
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