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The Euro: Triumphs, Challenges, and the Road Ahead in European Integration

Delve into the creation, impact, and current struggles of the euro as the official currency of the eurozone. Explore the economic theory, political goals, and the collapse during the 2008-09 financial crisis, along with the challenges and decisions faced by member states, especially Germany. Gain insights into the potential scenarios for the future of the eurozone.

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The Euro: Triumphs, Challenges, and the Road Ahead in European Integration

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  1. The euro assolution and problem The politics of European monetaryintegration Zoltán Ádám, Kopint-Tárki Institute forEconomic Research Email: zoltan.adam@kopint-tarki.hu

  2. 1. The euro asthe top achievement of European integration • Decidedaboutin 1995 in Madrid, basedonthe 1992 Maastricht Treaty • Officiallyintroducedin 1999 • Coins and notesintroducedin 2002

  3. What is itgoodfor? • The euro is theofficialcurrency of theeurozone, theworld’ssecondlargesteconomy, consistingof 17 indiviudalcountries and 334 millionpeople • The world’ssecond most importantreservecurrency • Issuedbythe European Central Bank in Frankfurt that is responsibleformonetarypoliciesintheeurozone

  4. Whywasitcreated? • Economictheorybehind: The theory of optimum currencyarea (Robert Mundell, 1961) • Labor mobility • Capital mobility; price and wageflexibilityacrossthearea • Fiscaltransfermechanism (risksharing) • Similar business cycles

  5. Politicalgoalsbehind • Strengtheningpoliticalintegration • Fosteringsolidarityamongmemberstates • Promotion of economicdevelopmentacrossthearea • Alignment of business cycles

  6. Whycouldit be realized? • Creditor and debtorcountrieswerebothinterested • (Potential) current account imbalancesdidnotseemto be a problem • Differencesincompetitivenessdidnotseemto be a problemeither (capital and labor mobilitywouldeliminatethosedifferencesonthelongrun) • AccordingtotheStability and GrowthPact, no fiscalbail out waspossible (no moralhazardwasassumedwithrespecttodivergentfiscalpolicies)

  7. 2. Allthiscollapsesin 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

  8. 3. What’snow? • Shallthecorefinancetheperiphery? • Shalltheperipherystayintheeurozone? • Economicandpoliticalcosts of maintainingtheeurozoneorits (partial) disintegration

  9. 4. The Germancase • The quintessentialcreditor country: Germany • Interestedinmaintainingtheeurozone(exportstotheperiphery, enjoystherelativeweakness of the euro) • Controlsvastfinancialresourcesthatcan be usedtofinancetheperiphery • Butthepublic is opposedtothe idea of bailing out peripheralcountries

  10. Germanelections 2013

  11. Thankyou Zoltán Ádám, Kopint-Tárki Institute forEconomic Research zoltan.adam@kopint-tarki.hu

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