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The euro as solution and problem

The euro as solution and problem. The politics of European monetary integration Zoltán Ádám, Kopint-Tárki Institute for Economic Research Email: zoltan.adam @ kopint-tarki.hu. 1. The euro as the top achievement of European integration.

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The euro as solution and problem

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  1. The euro assolution and problem The politics of European monetaryintegration Zoltán Ádám, Kopint-Tárki Institute forEconomic Research Email: zoltan.adam@kopint-tarki.hu

  2. 1. The euro asthe top achievement of European integration • Decidedaboutin 1995 in Madrid, basedonthe 1992 Maastricht Treaty • Officiallyintroducedin 1999 • Coins and notesintroducedin 2002

  3. What is itgoodfor? • The euro is theofficialcurrency of theeurozone, theworld’ssecondlargesteconomy, consistingof 17 indiviudalcountries and 334 millionpeople • The world’ssecond most importantreservecurrency • Issuedbythe European Central Bank in Frankfurt that is responsibleformonetarypoliciesintheeurozone

  4. Whywasitcreated? • Economictheorybehind: The theory of optimum currencyarea (Robert Mundell, 1961) • Labor mobility • Capital mobility; price and wageflexibilityacrossthearea • Fiscaltransfermechanism (risksharing) • Similar business cycles

  5. Politicalgoalsbehind • Strengtheningpoliticalintegration • Fosteringsolidarityamongmemberstates • Promotion of economicdevelopmentacrossthearea • Alignment of business cycles

  6. Whycouldit be realized? • Creditor and debtorcountrieswerebothinterested • (Potential) current account imbalancesdidnotseemto be a problem • Differencesincompetitivenessdidnotseemto be a problemeither (capital and labor mobilitywouldeliminatethosedifferencesonthelongrun) • AccordingtotheStability and GrowthPact, no fiscalbail out waspossible (no moralhazardwasassumedwithrespecttodivergentfiscalpolicies)

  7. 2. Allthiscollapsesin 2008-09 • The shock proves asymmetric between the core and the periphery • Capital markets differentiate between the two • The no bail out close could not be maintained • Differences in competitiveness, demonstrated by current account imbalances prove problematic

  8. 3. What’snow? • Shallthecorefinancetheperiphery? • Shalltheperipherystayintheeurozone? • Economicandpoliticalcosts of maintainingtheeurozoneorits (partial) disintegration

  9. 4. The Germancase • The quintessentialcreditor country: Germany • Interestedinmaintainingtheeurozone(exportstotheperiphery, enjoystherelativeweakness of the euro) • Controlsvastfinancialresourcesthatcan be usedtofinancetheperiphery • Butthepublic is opposedtothe idea of bailing out peripheralcountries

  10. Germanelections 2013

  11. Thankyou Zoltán Ádám, Kopint-Tárki Institute forEconomic Research zoltan.adam@kopint-tarki.hu

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