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Will the Euro Bring Economic Crisis to Europe?

  • Philip Arestis

    (University of East London)

  • Malcolm Sawyer

    (University of Leeds)

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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File URL: http://econwpa.repec.org/eps/mac/papers/0103/0103003.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0103003.

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Length: 27 pages
Date of creation: 21 Mar 2001
Date of revision:
Handle: RePEc:wpa:wuwpma:0103003
Note: Type of Document - Adobe Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 27; figures: included
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Katrin Wesche, 1997. "The Stability of European Money Demand: An Investigation of M3H," Open Economies Review, Springer, vol. 8(4), pages 371-391, October.
  2. Bernd Hayo, 1999. "The Demand For Money In Austria," Macroeconomics 9902012, EconWPA.
  3. Arestis, Philip & McCauley, Kevin & Sawyer, Malcolm, 2001. "An Alternative Stability Pact for the European Union," Cambridge Journal of Economics, Oxford University Press, vol. 25(1), pages 113-30, January.
  4. Philip Arestis & Malcolm Sawyer, 1999. "The Economic and Monetary Union: Current and Future Prospects," Economics Working Paper Archive wp_282, Levy Economics Institute.
  5. Wolters, Jürgen & Teräsvirta, Timo & Lütkepohl, Helmut, 1996. "Modelling the Demand for M3 in the unified Germany," SSE/EFI Working Paper Series in Economics and Finance 113, Stockholm School of Economics.
  6. Karl-Heinz Tödter & Hans-Eggert Reimers, 1994. "P-Star as a link between money and prices in Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(2), pages 273-289, June.
  7. repec:sae:niesru:v:152:y::i:1:p:76-96 is not listed on IDEAS
  8. Rudiger Dornbusch & Carlo A. Favero & Francesco Giavazzi, 1998. "The Immediate Challenges for the European Central Bank," NBER Working Papers 6369, National Bureau of Economic Research, Inc.
  9. Mark Holmes, 2000. "The Velocity of Circulation: Some new evidence on international integration," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(4), pages 449-459.
  10. Gerdesmeier, Dieter, 1996. "The role of wealth in money demand," Discussion Paper Series 1: Economic Studies 1996,05e, Deutsche Bundesbank, Research Centre.
  11. den Butter, F. A. G. & Fase, M. M. G., 1981. "The demand for money in EEC countries," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 201-230.
  12. Antonio Fatás, 1998. "Does EMU need a fiscal federation?," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 163-203, 04.
  13. Ivo Arnold, 1994. "The myth of a stable European money demand," Open Economies Review, Springer, vol. 5(3), pages 249-259, July.
  14. Funke, Michael & Hall, Stephen & Ruhwedel, Ralf, 1999. "Shock Hunting: The Relative Importance of Industry-Specific, Region-Specific and Aggregate Shocks in the OECD Countries," Manchester School, University of Manchester, vol. 67(0), pages 49-65, Supplemen.
  15. Rudi Dornbusch & Carlo Favero & Francesco Giavazzi, 1998. "Immediate challenges for the European Central Bank," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 15-64, 04.
  16. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 65-113, 04.
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