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The Euro: The Economic Stabilizer of the Eurozone

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  • Lorca-Susino, Maria

Abstract

A monetary union is a group of states which share a single, or common, currency. An economic and monetary union (EMU), like the Eurozone, is characterized not only by a single currency, but also by a single market, as well as by a common economic and monetary policy. According to Cohen2, a monetary union represents the complete abandonment of all separate national currencies, and the full centralization of the monetary authority in a single joint institution, normally, a central bank. In theory, there are two possibilities for a monetary union. The first one is a situation where currencies may continue to be issued by individual governments, but tied together in an exchange-rate union. The second is to have member-states’ money replaced not by a joint currency, but rather by the money of a larger partner—an arrangement generically labelled “dollarization” after the United States dollar, the currency most widely used for this purpose. In the EMU3 member states give up their currencies and seigniorage revenues4 in favour of a common currency—the euro—following conversion between the former national currencies and the euro.

Suggested Citation

  • Lorca-Susino, Maria, 2007. "The Euro: The Economic Stabilizer of the Eurozone," MPRA Paper 7185, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:7185
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    Keywords

    Euro; stabilizer; inflation; employment; business cycle;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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