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European Monetary Union and the COVID-19 Crisis: A Tightrope Act with the Risk of Falling

In: New Challenges for the Eurozone Governance

Author

Listed:
  • Michael Heine

    (HTW University of Applied Sciences)

  • Hansjörg Herr

    (Berlin School of Economics and Law)

Abstract

The COVID-19 crisis has the potential to lead to long-term stagnation in the European Monetary Union (EMU). Especially the following challenges can be identified: a lack of labour market institutions can lead to nominal wage cuts and deflation; the lack of a strong fiscal centre can lead to an insufficient long-term stimulation after the COVID-19 recession; high levels of debt and non-performing loans can hamper growth; the insufficient real convergence can add to political destabilization. The Great Depression in the 1930s and the long-term stagnation in Japan after the asset market bubble in the 1980s support these arguments. The European Central bank, as the only powerful supranational institution, follows overall a good policy but one that is not sufficient to stabilize a monetary union. A more comprehensive integration of the EMU is needed to prevent the danger of its breakdown.

Suggested Citation

  • Michael Heine & Hansjörg Herr, 2021. "European Monetary Union and the COVID-19 Crisis: A Tightrope Act with the Risk of Falling," Springer Books, in: José Caetano & Isabel Vieira & António Caleiro (ed.), New Challenges for the Eurozone Governance, pages 23-43, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-62372-2_2
    DOI: 10.1007/978-3-030-62372-2_2
    as

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