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The Strange Case of the Attack on the Euro Area: Who Is To Blame?

Author

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  • Afonso, Óscar
  • Henrique Alves, Rui

Abstract

In recent months, the euro area has been under fire from the financial markets, speculators being blamed for the mounting of a kind of conspiracy whose ultimate goal would be the disintegration of the project's Economic and Monetary Union (EMU). In this paper, we discuss the true reasons of this situation with reference to four issues which the debate remains open since the early 90s: nominal convergence versus real convergence; need –or not– for the coordination of fiscal policies; adjustment mechanisms to specific shocks and the theory of optimum currency areas; and need –or not– for further progress in political integration. Using data on the Portuguese case, we argue that, on several of these topics, the present framework of the EMU still reveals many weaknesses, which would underpin the current unstable situation. In this context, we present some suggestions for strengthening the euro area, particularly in terms of its economic governance.

Suggested Citation

  • Afonso, Óscar & Henrique Alves, Rui, 2012. "The Strange Case of the Attack on the Euro Area: Who Is To Blame?," Revista Galega de Economía, University of Santiago de Compostela. Faculty of Economics and Business., vol. 21(ex).
  • Handle: RePEc:sdo:regaec:v:21:y:2012:i:ex_5
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