IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v20y2015i1p1-15.html

The Fragility of Two Monetary Regimes: The European Monetary System and the Eurozone

Author

Listed:
  • Paul De Grauwe
  • Yuemei Ji

Abstract

We analyse the similarities and the differences in the fragility of the European Monetary System (EMS) and the Eurozone. We test the hypothesis that in the EMS, the fragility arose from the absence of a credible lender of last resort in the foreign exchange markets; whereas in the Eurozone, it was the absence of a lender of last resort in the long‐term government bond markets that caused the fragility. We conclude that in the EMS, the national central banks were weak and fragile, and the national governments were insulated from this weakness by the fact that they kept their own national currencies. In the Eurozone, the roles were reversed. The national central banks that became part of the Eurosystem were strengthened. This came at a huge price, that is, the fragilization of the national governments that could be brought down by the whims of fear and frenzy in financial markets. Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Paul De Grauwe & Yuemei Ji, 2015. "The Fragility of Two Monetary Regimes: The European Monetary System and the Eurozone," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 20(1), pages 1-15, January.
    • Handle: RePEc:wly:ijfiec:v:20:y:2015:i:1:p:1-15
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Corrado Macchiarelli, 2018. "What is the EU-UK relation all about? Tracking the path from monetary integration to “ever closeness”," LEQS – LSE 'Europe in Question' Discussion Paper Series 137, European Institute, LSE.
    2. De Grauwe, Paul & Ji, Yuemei, 2022. "The fragility of the Eurozone: Has it disappeared?," Journal of International Money and Finance, Elsevier, vol. 120(C).
    3. Camarero, Mariam & Carrion-i-Silvestre, Josep Lluís & Tamarit, Cecilio, 2015. "Testing for external sustainability under a monetary integration process. Does the Lawson doctrine apply to Europe?," Economic Modelling, Elsevier, vol. 44(C), pages 343-349.
    4. De Grauwe, Paul & Ji, Yuemei, 2014. "How much Fiscal Discipline in a Monetary Union?," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 348-360.
    5. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2020. "The role of ECB monetary policy and financial stress on Eurozone sovereign yields," Empirical Economics, Springer, vol. 59(3), pages 1189-1211, September.
    6. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2017. "Eurozone bond market dynamics, ECB monetary policy and financial stress," Documents de Travail de l'OFCE 2017-18, Observatoire Francais des Conjonctures Economiques (OFCE).
    7. repec:spo:wpmain:info:hdl:2441/8vns9so6b9pnqfo7eebjgfann is not listed on IDEAS
    8. Nikolaos Antonakakis & Ioannis Chatziantoniou & David Gabauer, 2021. "The impact of Euro through time: Exchange rate dynamics under different regimes," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1375-1408, January.
    9. Heimberger, Philipp, 2023. "Public debt and r-g risks in advanced economies: Eurozone versus stand-alone," Journal of International Money and Finance, Elsevier, vol. 136(C).
    10. Fendel Ralf & Frenkel Michael, 2019. "Putting European Monetary Integration into a Historical Perspective: Two Decades of the European Monetary System versus Two Decades of the European Monetary Union," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(5-6), pages 769-795, October.
    11. Cinthia De Souza, 2026. "Sovereign bondholders and the Eurozone core-periphery divide: from the debt crisis to the quantitative tightening," Review of Evolutionary Political Economy, Springer, vol. 7(1), pages 1-28, December.
    12. Gros, Daniel, 2014. "The EMS Crisis of the 1990s: Parallels with the present crisis?," CEPS Papers 9119, Centre for European Policy Studies.
    13. Paniagua, Jordi & Sapena, Juan & Tamarit, Cecilio, 2017. "Sovereign debt spreads in EMU: The time-varying role of fundamentals and market distrust," Journal of Financial Stability, Elsevier, vol. 33(C), pages 187-206.
    14. Balli, Faruk & Pericoli, Filippo M. & Pierucci, Eleonora, 2018. "Globalization and international risk-sharing: The role of social and political integration," European Journal of Political Economy, Elsevier, vol. 55(C), pages 324-345.
    15. Dana Kiselakova & Beata Sofrankova & Miroslava Soltes, 2016. "Analytical View on the Financial and Social Stability within the Euro Area: Empirical Evidence from Slovakia," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1637-1645.

    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:20:y:2015:i:1:p:1-15. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.