Embed Size (px)
Citation preview
The euro as solution and problem
THE POLITICS OF EUROPEAN MONETARY INTEGRATION
ZOLTÁN ÁDÁM, KOPINT-TÁRKI INSTITUTE FOR ECONOMIC RESEARCH
EMAIL: [email protected]
1. The euro as the top achievement of European integration
Decided about in 1995 in Madrid, based on the 1992 Maastricht Treaty
Officially introduced in 1999
Coins and notes introduced in 2002
What is it good for? The euro is the official currency of the eurozone, the world’s second largest economy, consisting of 17 indiviudal countries and 334 million people
The world’s second most important reserve currency
Issued by the European Central Bank in Frankfurt that is responsible for monetary policies in the eurozone
Why was it created?
Economic theory behind: The theory of optimum currency area (Robert Mundell, 1961)
◦ Labor mobility◦ Capital mobility; price and wage flexibility across the area◦ Fiscal transfer mechanism (risk sharing)◦ Similar business cycles
Political goals behind
◦ Strengthening political integration
◦ Fostering solidarity among member states
◦ Promotion of economic development across the area
◦ Alignment of business cycles
Why could it be realized? Creditor and debtor countries were both interested
(Potential) current account imbalances did not seem to be a problem
Differences in competitiveness did not seem to be a problem either (capital and labor mobility would eliminate those differences on the long run)
According to the Stability and Growth Pact, no fiscal bail out was possible (no moral hazard was assumed with respect to divergent fiscal policies)
2. All this collapses in 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
3. What’s now?
Shall the core finance the periphery?
Shall the periphery stay in the eurozone?
Economic and political costs of maintaining the eurozone or its (partial) disintegration
4. The German case The quintessential creditor country: Germany
◦ Interested in maintaining the eurozone (exports to the periphery, enjoys the relative weakness of the euro)
◦ Controls vast financial resources that can be used to finance the periphery
◦ But the public is opposed to the idea of bailing out peripheral countries
German elections 2013Summary of the 22 September 2013 German Bundestag election results[26]
Parties
Constituency Party list Total seats
Votes % +/− Seats +/− Votes % +/− Seats +/− Seats +/− %
CDU 16,233,642 37.2 +5.2 191 +18 14,921,877 34.1 +6.9 64 +43 255 +61 40.5
SPD 12,843,458 29.4 +1.5 58 −6 11,252,215 25.7 +2.7 135 +53 193 +47 30.5
The Left (DIE LINKE) 3,585,178 8.2 −2.9 4 −12 3,755,699 8.6 −3.3 60 ±0 64 −12 10.2
Alliance '90/The Greens (GRÜNE) 3,180,299 7.3 −1.9 1 ±0 3,694,057 8.4 −2.3 62 −5 63 −5 10.0
(CSU) 3,544,079 8.1 +0.7 45 ±0 3,243,569 7.4 +0.9 11 +11 56 +11 8.9
FDP 1,028,645 2.4 −7.1 0 ±0 2,083,533 4.8 −9.8 0 −93 0 −93 0
Alternative for Germany (AfD) 810,915 1.9 +1.9 0 ±0 2,056,985 4.7 +4.7 0 ±0 0 ±0 0
