Mabbett, D. & Schelkle, W. (2014) “The lack of monetary sovereignty is not the reason Eurozone countries struggled during the crisis“, LSE EUROPP, 04 Απριλίου.
One of the most widespread arguments about the Eurozone crisis is that countries such as Greece, Spain and Italy have been hamstrung by their lack of monetary sovereignty and the ability to devalue their own currency. Deborah Mabbett and Waltraud Schelkle assess this perspective by comparing the experiences of Greece with Hungary, which does not use the euro, and Latvia, which previously pegged its currency to the euro before joining the single currency in 2014. They find that while there are real problems with the crisis management in the Euro area, monetary sovereignty is not the solution.
It’s all quiet on the euro front at present. We would not be so reckless as to predict that this will last, but this pause gives us a chance to reflect on the lessons so far. During the crisis, we learned about the importance of monetary sovereignty, a notion that had become somewhat discredited in the 1980s and 1990s. We learned that the ‘GIPSI’ group of states (Greece, Ireland, Portugal, Spain and Italy) suffered because they could no longer adjust their nominal exchange rate, and so were fated to experience a secular decline in competitiveness. And we also learned that a central bank should act not only as lender of last resort to the banking system, but also to the government: monetary sovereignty is valuable because it means that the central bank can buy government debt by printing domestic currency.
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