After years of negotiation among European nations, participants reached an agreement to establish the Economic and Monetary Union (EMU) and in January 1999, the euro came into being. The European Central Bank (ECB) assumed responsibility for the monetary policy of a currency union made up of 11 countries and 293 million people. Today, the Eurozone includes 19 countries with a total population of 340 million. The euro has become the second currency used in world markets under any metric and is an anchor of economic and financial integration. And yet, the euro is far from an unwavering success. The global financial crisis of 2008 sent shockwaves around the world and proved to be the first major test of the EMU. It exposed numerous architectural flaws in the union including the focus on limiting inflation to close to two percent, the lack of a political mandate at the European level and the ‘no bail-out’ clause of the Maastrict Treaty. These and other obstacles hindered the EMU’s handling of the crisis and prolonged its effects especially in periphery countries.
Marco Buti, Maya Jollès and Matteo Salto open this issue, appropriately, with a reflection on what the EMU has acheived over the course of the last 20 years, the initial objectives set out for the euro and how they have changed over time. A pivotal point of the euro's nascent history was the global financial crisis of 2008 and the shockwaves that followed. Why wasn’t the architecture of the EMU better prepared to handle this crisis, asks Daniel Gros. After all, the euro area should have been better able to cope than the US because there were fewer sub-prime mortgages in Europe. Lorenzo Bini Smaghi and Michala Marcussen look at ways to break the sovereign-bank doom loop and create a safe asset in preparation for a future crisis.
The euro at 20 looks frail, says Thomas Mayer. He proposes a ‘New Deal’ between the heavily indebted southern and less indebted northern countries to put the euro back on its feet. Adalbert Winkler is also skeptical and warns of the euro's vulnerability to regional crises, "as national(istic) politics might scapegoat integration, when the problem is actually a lack of integration." To conclude our Forum, Harold James provides a comprehensive overview of the current challenges facing the euro and weighs the best options for addressing them, such as initiatives and multilateral institutions.
While there has been much hand-wringing about the impact of Brexit on the UK and the EU, former Irish Minister for European Affairs Lucinda Creighton examines what the departure means for Northern Ireland and the northerly counties of the Republic of Ireland. The economic implications of a No Deal Brexit are stark, but the political fallout is potentially explosive. "Let there be no doubt," Creighton writes, "if the UK leaves the European Union without a deal, a hard border on the island of Ireland will be unavoidable." Securing peace and saving lives in Northern Ireland, Creighton concludes, is by far more pressing than any economic concern.
The global financial crisis revealed the cracks in the Economic and Monetary Union and triggered a costly crisis, particularly in the euro area periphery. New institutions and tools were set up to address these issues including the European Stability Mechanism (ESM) and Outright Monetary Transactions (OMT). Despite this, sovereign-bank doom loops persist. Lorenzo Bini Smaghi and Michala Marcussen lay out eight factors that point to the need for a safe asset for the euro area in order to break this cycle and revive the European integration process given the important role that it plays for many of the building blocks.
Each quarter, the US Bureau of Labor Statistics puts out a jobs report that is more glowing than the last. With unemployment steadily decreasing, according to the reports, and more and more Americans going to work, where does their pervasive sense of economic insecurity come from? While economists originally pinned the blame on new technologies and the rise of the gig economy, Eileen Appelbaum argues that it actually stems from the increasing importance of fissuring and financialization. These practices leave the American worker feeling disposable and a distant second to the shareholder. To combat this, minimum employment standards should be established including a federal minimum wage, medical insurance and more affordable education.
Fair and Sustainable Taxation in Europe
with articles from Margit Schratzenstaller, Lotta Björklund Larsen, Marian Fink and many more.
from Thomas Mayer's Forum article The Euro at 20: A New Deal to Save the Euro.
About Intereconomics – Review of European Economic Policy
Intereconomics is jointly produced by ZBW – Leibniz Information Centre for Economics and the Centre for European Policy Studies (CEPS). The journal appears bimonthly and features papers by economists that deal with economic and social policy issues and trends in Europe or affecting Europe. To submit a paper for publication, please visit the Submissions section of our website for relevant information.
Intereconomics is published by Springer-Verlag Berlin Heidelberg.
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