Political Economy of the Euro Area Crisis

Authors

  • Casimir Dadak Hollins University, Department of Business and Economics, USA

DOI:

https://doi.org/10.2298/PAN1105593D

Keywords:

European monetary union, Optimum currency area, Asymmetric shocks, Fiscal and monetary stabilization policies

Abstract

For many experts the true motivation behind the introduction of a single currency in Europe is political rather than economic. This view is based on the fact that the euro area does not constitute an optimal currency area and, therefore, the costs of monetary integration are likely to outweigh the benefits. In particular, the loss of control over monetary policy and exchange rates make overcoming asymmetric demand-side shocks very painful. Moreover, the monetary union lacks a common fiscal authority that could help in smoothing out business cycles. The present crisis exposed these vulnerabilities and, unfortunately, so far economic policies adopted in the region have failed to rectify these shortcomings.

Key words: European monetary union, Optimum currency area, Asymmetric shocks, Fiscal and monetary stabilization policies.
JEL: F59, E63, O52.

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Published

2011-10-10

How to Cite

Dadak, C. (2011). Political Economy of the Euro Area Crisis. Panoeconomicus, 58(5), 593–604. https://doi.org/10.2298/PAN1105593D