IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Does the Euro Need a State?

Listed author(s):
  • Thomas Mayer


    (Deutsche Bank, Taunusanlage 12, 60325 Frankfurt am Main)

Registered author(s):

    Does the euro need a state? Not necessarily. EMU could be built along the lines of a gold standard, where • the supply of central bank money by the ECB is inflexible (as a result of a link to gold or a fixed “k-percent-rule” of central bank money expansion); • sight deposits in a certain amount are guaranteed by banks’ holding of central bank reserves against them in the full amount; • all other creditors to banks bear credit risk, and banks are not allowed to lend to governments in excess of regulatory limits to single credit exposures; and • there are legally binding insolvency procedures for banks and states. An EMU of this type would not allow an activist monetary policy to stabilize total demand and, by establishing a hard budget constraint for governments, it would set strict limits to the room for maneuver of fiscal policy. It would be left to governments to create the necessary economic flexibility for their economies to be able to adjust to economic shocks or, if they cannot do this, leave EMU. It would, of course, be an illusion to believe that the above sketched model for EMU would be implemented. Politics cannot be economically abstinent; it needs meddling with the economy to justify its existence, preferably for the benefit of powerful vested interest groups. Hence, politics wants the euro as state debt money, even if electorates resist a state for the euro. But state debt money without a functioning state is unstable as it opens the door for the abuse of the money printing press. Thus, politics may succeed in keeping the euro, but hardly as a stable currency in the long run.

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Article provided by Credit and Capital Markets in its journal Credit and Capital Markets.

    Volume (Year): 46 (2013)
    Issue (Month): 2 ()
    Pages: 159-172

    in new window

    Handle: RePEc:kuk:journl:v:46:y:2013:i:2:p:159-172
    Contact details of provider: Web page:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:kuk:journl:v:46:y:2013:i:2:p:159-172. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Credit and Capital Markets)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.