A study published on behalf of Rosa Luxembourg Foundation.
1. Why monetary union?
The European Economic and Monetary Union (EMU) is in deep crisis, and an increasing number of observers question the ability of EMU to survive this crisis. What has gone wrong? Are the diagnoses commonly offered valid? Why do the medicines that have been prescribed not work? Could it really be possible that European politics at the highest level fails to understand the cause of the crisis and to address it with a consistent plan?
In order to find persuasive answers to these questions it is necessary to go back to the origins of monetary union and to identify the constructional defects that have burdened its existence from the very beginning up to the point of make or break that it reached after the big financial crisis and the great recession of 2008 and 2009.
Was monetary union a bad idea from the outset and does its possible failure reflect a lack of good economic reasoning behind the politically motivated decision to accelerate European integration, as most of its critics allege? On the other hand: could the launching of EMU not be considered as the final step on the way towards lasting exchange rate stability after many years during which the members of the European Monetary System (EMS) had practised systems of managed exchange rates? And what about the vagaries of the financial markets which motivated European authorities back in the 1970s to reject a system of fully flexible exchange rates for currency relations within the region? Moreover, after 30 years of free floating among the major currencies, is there convincing evidence that supports the belief in the efficiency of markets in finding the fair value of a currency without friction?
For the full text (pdf) please refer to “Documentation” on the right or to: http://www.rosalux.de/eurokrise
Heiner Flassbeck graduated in economics from Saarland University, Germany; Ph. D. from Free University, Berlin; honorary professor at Hamburg University; with the UNCTAD secretariat since 2000; since 2003 director ofthedivision on globalisation and development strategies; leader of the team preparing the Trade and Development Report. Former Vice Minister of Finance in Germany and Chief Economist of the German Institute of Economic Research in Berlin.
Costas Lapavitsas is Professor of Economics at the School of oriental and African Studies, University of London. He has undertaken research in the political economy of money and finance, the Japanese economy, history of economic thought, economic history, and the contemporary world economy. Recently his work has focused on the euro-zone crisis. In 2012 he published, “Crisis in the Eurozone” (Verso), produced jointly with several researchers associated with research on money and finance at SoAS. His next book is “Profiting without Producing”, (Verso), 2013, a study of the financialisation of contemporary capitalism.