Aizenman, J. (2014) “The euro crisis: Muddling through, or on the way to a more perfect euro union?“, VoxEU Organisation, 03 Ιουλίου.
After a promising first decade, the Eurozone faced a severe crisis. This column looks at the Eurozone’s short history through the lens of an evolutionary approach to forming new institutions. German dominance has allowed the euro to achieve a number of design objectives, and this may continue if Germany does not shirk its responsibilities. Germany’s resilience and dominant size within the EU may explain its ‘muddling through’ approach to the Eurozone crisis. Greater mobility of labour and lower mobility of under-regulated capital may be the costly ‘second best’ adjustment until the arrival of more mature Eurozone institutions.
The short history of the Eurozone has been remarkable and unprecedented – the euro project has moved from the planning board to a vibrant currency within less than ten years. Otmar Issing’s optimistic speech in 2006 reflects well the buoyant assessment of the first decade of the euro – an unprecedented formation of a new currency without a state. Observers viewed the rapid acceptance of the euro as a viable currency and the deeper financial integration of the Eurozone and the EU countries as stepping stones toward a stable and prosperous Europe. The growing current-account deficits of GIIPS (Greece, Ireland, Italy, Portugal, and Spain) in the early 2000s supported their growing borrowing at declining sovereign spreads. Intriguingly, GIIPS bonds’ interest rates dramatically converged during the 1990s to the German rate (see Figures 1 and 2). Observers viewed emerging Europe’s large current-account deficits as a validation of the gains associated with ‘capital flowing downhill’, possibly dispelling concerns about the limited benefits of importing foreign savings as a means of financing domestic growth. The celebratory assessment of the euro continued well into its tenth-year anniversary, only to crash with the unfolding events of the Eurozone crisis.
Σχετικές αναρτήσεις:
- Véron, Ν. (2014) “Euro crisis turning point: Two years of Banking Union – Europe’s leaders avoided their usual muddling-through complacency to do something radical—and it worked!“, Bruegel Institute, 30 Ιουνίου.
- Legrain, P. (2014) “Europe’s Bogus Banking Union“, Project Syndicate, 08 Απριλίου.
- Huertas, T. & Nieto, J. M. (2014) “How Much is Enough? The Case of the Resolution Fund in Europe“, VoxEU Organisation, 18 Μαρτίου.