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At the crossroads: the euro and its central bank guardian (and saviour?)

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  • Jörg Bibow

Abstract

This paper investigates the role of the European Central Bank (ECB) in the (mal)functioning of Europe's Economic and Monetary Union (EMU), focusing on the German intellectual and historical traditions behind the euro policy regime and its central bank guardian. The analysis contrasts Keynes's chartalist conception of money and central banking with the peculiar post-World War II German traditions nourished by the Bundesbank and based on a fear of fiscal dominance. Keynes viewed the central bank as an instrument of the state, controlling the financial system and wider economy but ultimately an integral part of, and controlled by, the state. In contrast, the 'Maastricht (EMU) regime' (of German design) positions the central bank as controlling the state. Essentially, the national success of the Bundesbank model in pre-EMU times has left Europe stuck with a policy regime that is wholly unsuitable for the area as a whole. But regime reform is complicated by severely unbalanced competitiveness positions and debt-overhang legacies. Refocusing the ECB on growth and price stability would have to be a part of any solution, as would refocusing area-wide fiscal policy on growth and investment. Copyright , Oxford University Press.

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  • Jörg Bibow, 2013. "At the crossroads: the euro and its central bank guardian (and saviour?)," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 37(3), pages 609-626.
    • Handle: RePEc:oup:cambje:v:37:y:2013:i:3:p:609-626
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    File URL: http://hdl.handle.net/10.1093/cje/bet004
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    1. Kenen,Peter B., 1995. "Economic and Monetary Union in Europe," Cambridge Books, Cambridge University Press, number 9780521558839.
    2. Allsopp, Christopher & Vines, David, 1998. "The Assessment: Macroeconomic Policy after EMU," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 14(3), pages 1-23, Autumn.
    3. Goodhart, Charles A. E., 1998. "The two concepts of money: implications for the analysis of optimal currency areas," European Journal of Political Economy, Elsevier, vol. 14(3), pages 407-432, August.
    4. Jorg Bibow, 2001. "Making EMU Work: Some lessons from the 1990s," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(3), pages 233-259.
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    5. William Mitchell, 2016. "Eurozone Groupthink and Denial on a Grand Scale," World Economic Review, World Economics Association, vol. 2016(7), pages 43-55, July.
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    More about this item

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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