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Will The Euro Bring Economic Crisis to Europe?

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  • Philip Arestis
  • Malcolm Sawyer

Abstract

It has been argued that the eurozone will face considerable economic difficulties. These will take a number of forms, two of which could qualify as "crises." First, the euro was launched at a time when unemployment levels were high (10 percent of the workforce) and disparities in the experience of unemployment and standards of living were particularly severe. These high levels of unemployment are likely to continue in the foreseeable future, and the policy arrangements that surround the operation of the euro, notably the objectives of the European Central Bank and the workings of the Stability and Growth Pact, will have a deflationary bias. These levels of and disparities in unemployment could be termed a crisis. Second, the introduction of the euro and the associated institutional setting could well serve to exacerbate tendencies toward financial crisis, including the volatility and subsequent collapse of asset prices and runs on the banking system. Some additional forces of instability may arise from the current trade imbalances and the relationship between the dollar and the euro as two major global currencies. Further, the operating arrangements of the European System of Central Banks can be seen as inadequate to cope with such financial crises.

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  • Philip Arestis & Malcolm Sawyer, 2001. "Will The Euro Bring Economic Crisis to Europe?," Economics Working Paper Archive wp_322, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_322
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    Cited by:

    1. Alex Izurieta, 2001. "Can Countries under A Common Currency Conduct Their Own Fiscal Policies?," Macroeconomics 0108008, EconWPA.
    2. Stéfano Figuera, 2002. "The reform of the international monetary system (a Keynesian approach)
      [La réforme du système monétaire international (une réflexion dans une perspective keynésienne)]
      ," Working Papers hal-01526941, HAL.
    3. Francesco Carlucci & Alessandro Girardi, 2004. "National Specifities and Monetary-Policy Trasmission in Europe," Working Papers 73, University of Rome La Sapienza, Department of Public Economics.
    4. FIGUERA, Stephano, 2002. "La réforme du système monétaire international : une réflexion dans une perspective keynésienne," LATEC - Document de travail - Economie (1991-2003) 2002-01, LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS UMR 5118, Université de Bourgogne.
    5. Jörg Bibow, 2001. "The Monetary Policies of the European Central Bank and the Euro's (Mal)Performance: A Stability-Oriented Assessment," Macroeconomics 0109004, EconWPA.
    6. Jorg Bibow, 2002. "The Monetary Policies of the European Central Bank and the Euro's (Mal-)Performance: A stability-oriented assessment," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(1), pages 31-50.

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