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The eurozone: piecemeal approach to an optimum currency area

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  • Handler, Heinz

Abstract

Soon after the establishment of the Eurozone it became obvious that the structural differences between member states would not abate, as expected, but rather gradually widen. Although part of the problem can be attributed to the enlargement process, it also relates to asymmetric effects of the common currency and to diverging economic policies. This paper discusses the literature which associates the economic characteristics of EMU with arguments of the optimum currency area (OCA) theory and asks for missing capstones that would meliorate EMU to eventually resemble an OCA. As potential candidates for such building blocks, some sort of fiscal union and lender of last resort may qualify, drawing on the experiences of other currency unions and federal states. The financial and debt crisis has revealed that the endogenous forces within a currency union may be too slow to absorb the shocks originating from the crisis. For a currency union to survive in such a situation it is all the more important that the OCA criteria are met and/or that complementary institutions are in place. However, as actual developments in the Eurozone reveal, the political process of approaching an OCA is piecemeal rather than comprehensive and prompt.

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  • Handler, Heinz, 2013. "The eurozone: piecemeal approach to an optimum currency area," MPRA Paper 67183, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:67183
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    2. Stefan Ederer & Peter Reschenhofer, 2013. "Macroeconomic Imbalances in the EU. WWWforEurope Working Paper No. 42," WIFO Studies, WIFO, number 47017.
    3. Fritz Breuss, 2012. "Towards a New EMU," WIFO Working Papers 447, WIFO.
    4. Stefan Ederer & Stefan Weingärtner, 2013. "Remapping EMU. On the Future Construction of Economic and Monetary Union. WWWforEurope Policy Paper No. 5," WIFO Studies, WIFO, number 47009.
    5. Donato Masciandaro & Davide Romelli, 2017. "Optimal Currency Area and European Monetary Membership: Economics and Political Economy," BAFFI CAREFIN Working Papers 1760, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    6. Kawecka-Wyrzykowska Elżbieta, 2017. "Is Intra-Industry Trade Specialization a Precondition to Business Cycle Synchronization When Joining the Euro Area? The Case of Poland," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 53(4), pages 50-60, December.
    7. Stefan Ederer & Stefan Weingärtner, 2013. "Zur Vertiefung der Wirtschafts- und Währungsunion," WIFO Monatsberichte (monthly reports), WIFO, vol. 86(6), pages 493-507, June.
    8. Donato Masciandaro & Davide Romelli, 2018. "To Be or not to Be a Euro Country? The Behavioural Political Economics of Currency Unions," BAFFI CAREFIN Working Papers 1883, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    9. Stefan Ederer, 2015. "Macroeconomic Imbalances and Institutional Reforms in the EMU. WWWforEurope Working Paper No. 87," WIFO Studies, WIFO, number 57896.
    10. Michaela Posch & Stefan W. Schmitz & Katharina Steiner & Eva Ubl, 2019. "The case for macroprudential policy as a stabilizing tool for the euro area," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1-Q2/19, pages 124-138.
    11. István Benczes & Balázs Szent-Iványi, 2016. "Rising Hopes in the European Economy Amidst Global Uncertainties," Journal of Common Market Studies, Wiley Blackwell, vol. 54, pages 167-184, September.
    12. Stefan Ederer & Stefan Weingärtner, 2013. "Deeper Integration of Economic and Monetary Union," Austrian Economic Quarterly, WIFO, vol. 18(3), pages 135-148, August.

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    Keywords

    Eurozone; endogenous optimum currency areas; national and multinational currency unions;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements

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