Hauskrecht, Andreas and Stuart, Bryan and Hankel, Wilhelm (2010): The Euro-Project at Risk.
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In contrast to Robert Mundell‘s Optimum Currency Area theory and his recommendation of forming a monetary union, the economic fundamentals of Euro area member countries have not harmonized. The opposite holds: the Euro core countries - most of all Germany, but also the Netherlands and Finland - increased productivity growth while limiting nominal wage growth. However, Mediterranean countries - particularly Greece, but also Spain, Portugal, and Italy - have dramatically lost international competitiveness. Although the overall balance of payments for the Euro area at large is almost balanced, internal disequilibria are skyrocketing and default risk premiums and tensions within the Euro area are rising, thus jeopardizing the stability of the monetary union. The findings confirm that a common currency without fiscal union is inherently unstable. The international financial and economic crisis has merely triggered events which highlight this instability. The paper discusses three possible scenarios for the future of the Euro: a laissez faire approach, a bailout, and finally an exit strategy for the Mediterranean countries, or an organized exit by a group of core countries led by Germany, forming their own smaller monetary union.
|Item Type:||MPRA Paper|
|Original Title:||The Euro-Project at Risk|
|Keywords:||Optimum currency areas, monetary union, risk spreads, central banking, exchange rates, fiscal policy|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
E - Macroeconomics and Monetary Economics > E0 - General > E00 - General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions
|Depositing User:||Andreas Hauskrecht|
|Date Deposited:||10. Jul 2010 10:11|
|Last Modified:||14. Feb 2013 02:39|
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