Narratives of Optimum Currency Area Theory and Eurozone Governance

Optimum Currency Area theory (OCA) is a body of research that has, since its inception in 1961, been highly influential for the discourse and design of Economic and Monetary Union, exercising a significant hermeneutical force. Nonetheless, there has been little acknowledgement that OCA is the subject of very significant internal disagreement, to the extent that economists writing within the field do not commonly agree upon the ontological foundations of the theory. This entails that the translation of the theory into political reality has been characterised by a series of often mutually contradictory narratives, which build upon schisms in the academic corpus. The political realisation of this can be seen during the negotiations over the 1992 process, where certain aspects of the theory concerning governance (of fiscal policy and preferences for conflict adjudication) have been notably suppressed, capitalising upon the fundamental uncertainty in the theory itself. The final part of the paper goes on to consider the financial crisis, and how OCA theory might aid policy-makers' attempts to induce ex-post convergence, demonstrating the continued relevance of the theory.