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Is the Eurozone not a monetary union, but an extraordinary exchange rate union?

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  • Sauer, Beate
  • Sell, Friedrich L.

Abstract

The Target imbalances within the Eurozone can be interpreted as a sign of a missing balance of payments adjustment mechanism for the member countries. As the Eurozone lacks a fiscal union, in economic theory it is more an exchange rate union or a system of fixed exchange rates than a monetary union. In the latter, there would not be any national balances of payments, but only one for the whole Eurozone. This paper will show why the Target System is a crucial indicator for the Eurozone not being a monetary union, but an exchange rate union and why countries holding Target liabilities against the European System of Central Banks can be compared to a reserve currency country, e.g. like the US during the Bretton-Woods-System.

Suggested Citation

  • Sauer, Beate & Sell, Friedrich L., 2013. "Is the Eurozone not a monetary union, but an extraordinary exchange rate union?," Working Papers in Economics 2013,2, Bundeswehr University Munich, Economic Research Group.
  • Handle: RePEc:zbw:ubwwpe:20132
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    References listed on IDEAS

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    1. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target loans, current account balances and capital flows: the ECB’s rescue facility," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 468-508.
    2. Friedrich L. Sell & Beate Sauer, 2012. "Money, Capital Markets and Welfare: An Analysis of the Effects of Target2 Balances," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 55-62, February.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, pages 573-578.
    4. Hans-Werner Sinn, 2012. "Die Target-Falle: Gefahren für unser Geld und unsere Kinder," Books, by Staff of the ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 2012001.
    5. Aaron Tornell & Frank Westermann, 2012. "Greece: The Sudden Stop That Wasn’t," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 102-103, February.
    6. Sell, Friedrich L. & Sauer, Beate, 2011. "A further view on current account, capital account and Target2 balances: Assessing the effect on capital structure and economic welfare," Working Papers in Economics 2011,2, Bundeswehr University Munich, Economic Research Group.
    7. Hans-Werner Sinn, 2014. "Austerity, Growth and Inflation: Remarks on the Eurozone's Unresolved Competitiveness Problem," The World Economy, Wiley Blackwell, vol. 37(1), pages 1-13, January.
    8. Silvia Merler & Jean Pisani-Ferry, 2012. "Sudden Stops in the Euro Area," Review of Economics and Institutions, Università di Perugia.
    9. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target-Salden und die deutsche Kapitalbilanz im Zeichen der europäischen Zahlungsbilanzkrise," Credit and Capital Markets, Credit and Capital Markets, vol. 45(4), pages 465-487.
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    Cited by:

    1. Beate Sauer & Friedrich Sell & Thomas Werner, 2014. "Modelling the Eurozone as an Extraordinary Exchange Rate Union," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(4), pages 357-367, November.
    2. repec:kap:iaecre:v:20:y:2014:i:4:p:357-367 is not listed on IDEAS

    More about this item

    Keywords

    Target Imbalances; Balance of Payments Crisis; Balance of Payments Adjustment Mechanism; Eurozone; Fixed Exchange Rates; Fiscal Union;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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