Managing crisis in the eurozone (original) (raw)
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Imbalances and Policies in the Eurozone
Journal of Business & Economic Policy, 2017
The present paper highlights the imbalances that have characterized the Eurozone during the crisis. The contribution focuses on the issue of current account imbalances and the factors that caused them. It also examines the banking union as an important step toward a better management of the Eurozone financial imbalances. Furthermore, the paper discusses and assesses the policies, especially monetary policy,implemented in the Eurozone, stressing the limits of the strategy pursued by the European authorities. The main purpose of the paper is to point out possible solutions in order to correct the imbalances and discuss changes in Eurozone policies. The present paper highlights the imbalances that have characterized the Eurozone during its long crisis. Thecontribution focuses on the issue of current account imbalances andthe factors that caused them. It also examines the banking union as an important step toward a better management of the Eurozone financial imbalances.Furthermore, the paper discusses and assesses the policies, especially monetary policy, implemented in the Eurozone, stressing the limits of the strategy pursued by the European authorities.The main purpose of the paper is to point out possible solutions in order to correct the imbalances and discuss changes in Eurozone policies. The ultimate goal is to have a more balanced and integrated Eurozone which is able to pursue stability, less divergence and political credibility. 2.Policies, institutional flaws and the crisis in the Eurozone Before the crisis, the governance in the Eurozone was based on a fiscal policywhich remained at national level, although constrained by the Growth and Stability Pact. At the same time, national authorities were deprived of the exchange-rate instrument and national discretion over last resort lending for macroeconomic management. The ECB was and still is an independentEU official institution, in charge of handling the single currency and the monetary policy with the narrow remit of ensuring price stability 1. Consequently, monetary policy has resulted to be independent from fiscal policy.In addition, the ECB did not monitor the banking sector, since bank regulation and resolution, as well as the regulation of financial markets, were left to national governments. Although in the years before the crisis the increasing integration of Eurozone financial markets determined a growth in capital flows and banking − an increase that undermined the ability of some member states to backstop their national banking system −, there was no strategy in terms of harmonization of rules and surveillance of the financial sector in the EMU (Schilirò, 2017). The EMU lacked a developed surveillance framework to track and correct the imbalances in financial markets, sovereign debts, and competitiveness (European Commission, 2017). Thus, the stabilizers that existed at the national level prior to the start of EMU were stripped away from member states without being transposed at the monetary union level. This left the member states unable to deal with the coming national disturbances (De Grauwe, 2013). At the same time, financial deepening reached a certain level within the monetary union, due the concurrent progress of financial integration and financial sector growth, and it left the Eurozone facing a policy trilemma. 1 Article 127(1) of TFEU.
The problematic nature of the Economic and Monetary Union
Financial Crisis, Labour Markets and Institutions
The ongoing crisis of the eurozone is calling its continued existence into doubt, and raising questions on whether it can function effectively. The view of the nature of the eurozone crisis as arising from 'design faults' of the Economic and Monetary Union and a balance of payments crisis with large current account imbalances between countries is developed. The policy remedies (in the form of the 'fiscal compact') which are being put into place will not work in their own terms and will make the economic performance of the eurozone countries worse. Some Keynesian remedies for the crisis in terms of alternative policy proposals for the operation of the Economic and Monetary Union are outlined.
Dysfunctions of the European Monetary Union
Junior Scientific Researcher, 2020
Over time, the lack of a well-defined direction has made the project on which the entire functioning of the euro area and the European Union are based has undergone various transformations. The defaults of defining and functioning of the European Monetary Union have led to financial crises of the European single currency. The future of the European Monetary Union is uncertain at the moment. In order to avoid any new crisis in the euro area, politics should focus on synchronizing the economies of the member states and redefining the European project. The purpose of this article is to identify the dysfunctions of the Eurozone and to formulate possible solutions for a deeper European integration. To achieve this goal, we need to reach a number of objectives that help us to conclude: to analyze the malfunctions that emerged in defining the European project, to analyze the dysfunctions that led to the emergence of crises inside the euro area and to identify a possible scenario to deepen ...
Overcoming the crisis in the Economic and Monetary Union
Przegląd Europejski 1/2016, 2016
The purpose of the article is to assess the extent to which it has been possible to overcome the crisis situation in the economic and political/systemic dimension in Europe. The events of the crisis in the Eurozone mobilised the national and European elites to respond above all with respect to the economic situation. But in part, the changes concerned also the political dimension or precipitated consequences of a systemic character (related to the mechanisms of European integration). Some ideas were only discussed and did not gain practical implementation due to differing opinions and interests among the leading political actors, above all the EU member states. As a result, the crisis was overcome to a partial or incomplete extent both in the economic and political respect.
Polish Review of International and European Law, 2020
While neither its institutional, nor legal arrangements fundamentally contributed to the emergence of the Eurozone crisis in the late 10’s of the 21st Century, the crisis exposed significant weaknesses of the EU economic governance, especially its inability to achieve a sustainable level of budgetary discipline. The crisis in particular highlighted the existing divisions of the EU Member States into different integration groups having divergent interests. Notably, it sharpened the division between the Eurozone states and non-Eurozone ones, as well as between the creditor-countries and debtor-countries. The EMU reform agenda adopted after 2008 gave more weighting to the interests of the former states. The emerging post-2008 economic governance-reform arrangements also gave more weight to the ECOFIN Council, at an expense of the European Commission. In the resulting institutional setting, the main aim of the EMU reform agenda was to assure the stability of the Eurozone and to reinforc...
European Monetary Union as a stabilizing factor in the circumstances of economic crisis
Ekonomika, Journal for Economic Theory and Practice and Social Issues, 2020
The authors examine the problems the European Monetary Union in the circumstances of the global economic crisis. They especially elaborated the battle for the financial stability of the European Monetary Union. The authors problematize the interaction of the European Central Bank and national central banks, emphasizing the deficiencies in the coordination of fiscal and monetary policy. They investigated the reasons that require a cautious strategy when it comes to the admission of new member states into the European Monetary Union and in that sense the conditions for nominal and real convergence. The authors consider the management of the economic crisis and the introduction of new institutions with the task to stabilize the situation in the monetary field. They explored the problems of helping countries like Greece from the point of view of the developed countries relationship. The authors especially paid attention to the level of transparency in relation to their citizens when making decisions on certain aid giving issues. They have proposed solutions for getting out of the vicious circle and the need to redesign the European Monetary Union and in this context the problem of the stabilization of the euro in order for it to be competitive with the dollar.
How the Euro Crisis Evolved and how to Avoid Another: EMU, Fiscal Policy and Credit Ratings
Journal of Macroeconomics, 2014
The papers and commentaries presented at the conference addressed many important issues related to the functioning of the euro area. Our hope is that these contributions will help improve understanding of the nature of Europe's monetary union, the underpinnings of its crisis, and the changes that are needed so that crises will be prevented in the future. The papers examined two main sets of issues. One group of papers, adopting a union-wide perspective, assessed the aspects of the euro area's institutional architecture that, with the benefit of hindsight, may have contributed to the crisis, and the policy responses to the crisis at the union level. A second group of papers focused on developments in three crisis countries-Greece, Ireland, and Portugal.
The Problems of the Economic and Monetary Union: Is There Any Escape?
2010
The financial crisis and recession have highlighted a range of problems with the 'euro project', but these problems and difficulties are related to some fundamental issues for the euro. The convergence criteria established by the Maastricht Treaty focused on nominal rather than real variables, failed to relate to issues such as current account positions. There are well-known difficulties of macroeconomic policies under the Stability and Growth Pact including its deflationary nature and the 'one size fits all problem' of imposing common deficit requirements on all countries. The economic performance of the eurozone countries is briefly reviewed with attention paid to the differential inflation rates; also accounted for are the changes in competitiveness as well as the current account deficits, and their implications for the future of economic performance within the eurozone, and the euro itself. The patterns of current account deficits and surpluses are linked with unemployment, lack of competitiveness and budget deficit issues. The nature of the reforms to the operations of the eurozone is examined. The political limits (including those arising from the nature of the Treaty of Lisbon) and the ideological constraints (associated with the neo-liberal agenda) on serious reforms are discussed from which the general conclusion is that the needed reforms will not be carried through. This discussion also includes consideration of the possible role for a substantial EU-level fiscal policy and some other aspects of political union. It is argued that the deep-seated problems are unlikely to be resolved, casting a dark shadow over the future of the euro.
A Structural-Institutional Explanation of the Eurozone Crisis
Oxford Scholarship Online
This chapter presents an argument about the underlying reasons for the persistent economic troubles in the Eurozone based on the two different and divergent growth models in the Eurozone’s member states: the export-oriented, skill-intensive, coordinated model of the northern and continental welfare economies and the demand-driven model with strong public sector unions in southern Europe. The chapter then argues that the interactions between macroeconomic policies and national institutions render policies that are appropriate for southern Europe dysfunctional for northern Europe, and vice versa. Is goes on to discuss different reform scenarios for the Eurozone, emphasizing that all reforms come at a considerable political cost, as the same political-economic institutions that would have to be reformed have strong stakes in the status quo in both political economy models. As there are no political incentives for structural change in either model, crises will persist.