Crisis of the euro zone and prospects of the euro

This paper analyzes problems of the eurozone, which are aggravated by the crisis. It proposes architectural transformations of the European monetary system targeted at combating the crisis and promoting economic growth and employment in today’s structurally inhomogeneous Europe.     

Switzerland and the euro

Switzerland is not a member of the European Union and, therefore, does not belong to the euro area. Nevertheless, the exchange rate of the Swiss franc against the euro has remained fairly stable. This stability does not imply that the Swiss National Bank pegs the exchange rate to the euro. On the contrary, the Swiss National Bank continues to pursue an autonomous monetary policy since monetary autonomy conveys various benefits to the Swiss economy.     

The euro and the monetary union

The Eurosystem established a single monetary policy and has the three guiding principles of independence, transparency, and decentralization. These three principles helped to successfully formulate and implement the euro on 1 January 2002. Major criticisms against establishment of the euro failed to come true and, in fact, the euro has quickly become a major currency in the world. Challenges facing continued success of the euro include structural reforms, financial stability, and the accession of new members to the EU and EMU. TheRobert A. Mundell Distinguished Address presented at the Fifty-Third International Atlantic Economic Conference, March 13–17, 2002, Paris, France.     

谁在绑架欧元

美国三大＂国际＂评级机构相继对希腊、葡萄牙、西班牙的主权信用评级做了下调,使各方对欧洲市场失去了信心。与欧元贬值相对应的是美元升值,这似乎与美国弱势美元的一贯政策不符。欧元暴跌,是欧洲自己造成的,还是有更复杂的外在因素     

Country size and the trade effects of the euro

This paper investigates whether small countries gain relatively more than large countries from an ‘expansion’ of their market through the creation of a single currency. The introduction of the euro offers a particularly valuable source to test this hypothesis, which we motivate using the theoretical model by Casella of the year 1996. Our results from a panel data analysis, using both aggregate and disaggregated trade data, point to a statistically significant but quantitatively moderate small country bonus. On average, the euro has led to an improvement of the small euro area’s relative export performance by 3–9%.

Risks to the long-term stability of the euro

There are grounds for immediate and long-term concerns with respect to the prospects for the stability of the euro's purchasing power. The immediate concerns arise from the pressures on the ECB to be more accommodative and the drive to weaken the Stability and Growth Pact. The long-term concerns arise from the spending obligations the member governments have assumed to provide pensions and health care to their aging populations for the next half-century, and the imminent enlargement of the EU to include ten states that are less economically and institutionally advanced than the present group of member states. The outlook is for greater spending by governments than their projected resources unless forces not now visible will strengthen the resolve of political leaders to serve the cause of a sound euro.Presidential address at the International Atlantic Economic Conference, Quebec City, Canada on Saturday, October 18, 2003.     

Overcoming the euro crisis and prospects for a political union

The euro crisis and a new debate about immigration in Europe have undermined support for the EU while the unsolved Greek debt problems as well as the ECB’s quantitative easing policy have raised new crucial policy issues. It is necessary to identify the key issues of Eurozone stabilization and to clarify the economic benefits from monetary integration. As regards the economic welfare analysis of the euro, the new model presented shows the benefits of the euro’s reserve currency position, namely in the framework of a neoclassical growth model with seigniorage based on international reserve holdings. Discounted benefits are about 10,000 € per capita in a stable Euro area. Thus the benefits are bigger than often considered, at the same time one may raise the question of whether the existing institutional setting of the Eurozone is sufficient for achieving long-term stability and prosperity. As regards the envisaged third rescue package for Greece it is emphasized that a haircut of public creditors along with adoption of a Greek capital levy plus privatization efforts are required to achieve debt sustainability and growth. The traditional interpretation of subsidiarity in the EU is found to be misleading and the vertical division of politics is destabilizing.     

Current account balances and structural adjustment in the euro area

In the past decade, a set of euro area countries has accumulated large current account deficits. After a brief relaxation of the euro area internal imbalances in the wake of the financial crisis, it appears as if this pattern arises anew when times normalize again and Germany still sticks to export-led growth. This issue has been labelled one of the most challenging economic policy issues for Europe inter alia by the European Commission and some other players on the EU level. In this paper, we analyse the role of private restructuring and structural reforms for the urgently needed sustainable readjustment of intra-euro area current account balances. A panel regression reveals a significant impact of structural reforms on intra-euro area current account balances. This implies that in particular structural reforms and wage restraint in notorious current account and budget deficit countries such as Greece are highly suitable to support long-term economic stability in Europe.     

What the euro means for the dollar and the international Monetary system

This article begins by analyzing the hirtorical importance of the introduction of the euro, the convergence criteria for membership in the European Monetary Union, the merits and defects of the euro as an international rival to the dollar, and the characteristics that have made past international currencies great. It goes on to consider the institutional gap in the world system arising from the absence of an official world currency and the threat to stability that arises in transition periods when a new international reserve asset or currency is phased in. It is argued that the introduction of the euro will involve diversification from the dollar that will require multilateral attention to the dollar-euro exchange rate.Distinguished Address presented at the Forty-Fifth International Atlantic Economic Conference, Rome, Italy, March 14–21, 1998.     

International macroeconomic announcements and intraday euro exchange rate volatility

The short-run reaction of Euro returns volatility to a wide range of macroeconomic announcements is investigated using 5-min returns for spot Euro–Dollar, Euro–Sterling and Euro–Yen exchange rates. The marginal impact of each individual macroeconomic announcement on volatility is isolated whilst controlling for the distinct intraday volatility pattern, calendar effects, and a latent, longer run volatility factor simultaneously. Macroeconomic news announcements from the US are found to cause the vast majority of the statistically significant responses in volatility, with US monetary policy and real activity announcements causing the largest reactions of volatility across the three rates. ECB interest rate decisions are also important for all three rates, whilst UK Industrial Production and Japanese GDP cause large responses for the Euro–Sterling and Euro–Yen rates, respectively. Additionally, forward looking indicators and regional economic surveys, the release timing of which is such that they are the first indicators of macroeconomic performance that traders observe for a particular month, are also found to play a significant role.     

Real time uncertainty in fiscal planning and debt accumulation in the euro area

Using real time data from the OECD this study explores euro area fiscal policies since the late 1990s. The results indicate that in the so-called periphery countries (Greece, Ireland, Italy, Portugal and Spain) ex ante fiscal plans have been more sensitive to economic cycles in the countercyclical direction than in the other euro area countries. Accumulated debt ratios in the periphery reflect high initial debt ratios, underlying deficit biases and cumulated errors in the data on macroeconomic imbalances. Overall, reliable statistics, balanced macroeconomic developments and longer-term policy orientation are crucial for sound and sustainable public finances.     

The effects of EMU on euro area unemployment

The author analyzes the likely impact of EMU and the associated changes in the monetary, economic, and institutional environment on European labor markets in an open economy model. He shows that in this model, the formation of a monetary union (MU) has no effect on unemployment if the participating countries were part of a fixed exchange rate regime before entering the MU and if the monetary policy of the common central bank resembles that of the former anchor bank. In addition, he discusses various cases in which this conclusion does not hold and where one can expect an impact of EMU on structural unemployment.     

Adoption of the euro: Why is the Czech approach cautious?

When published, the Czech Euro-area Accession Strategy signalled a rather cautious approach to adopting the euro in comparison to the intentions of other EU acceding countries. The euro adoption was scheduled around 2010 and the ERM II was viewed only as a waiting room. The Czech strategy was attuned to specific features of the Czech economy. Although inflation and nominal interest rates converged to the EMU levels before EU entry, large fiscal deficits and the need for significant fiscal reform did not make it possible to meet the Maastrich criteria soon. Moreover, real convergence was viewed as a priority for the forthcoming years and, consequently, the strategy was aimed at maintaining nominal flexibility in order to cushion consequences of price and wage rigidities during the peak period of the catch-up process.     

Macroeconomic adjustment programmes in the euro area: an overall assessment

Since the start of EMU (Economic and Monetary Union), the euro area, and more broadly the global economy, experienced an unprecedented credit boom. The expansion of credit was particularly strong in Greece, Ireland, Portugal and Cyprus and all of them subsequently needed official financial support. In each of the four programmes, financial assistance has been provided and promised against the commitment of each country to fulfil certain economic policy conditions contained in the macroeconomic adjustment programme. In general, a macroeconomic adjustment is a process driven by policies but also by changes in private spending behaviour (consumption, imports, investment) and improvement in competitiveness that countries are required to undertake after a large shock. In the case of the four countries, the shock emerged as a consequence of an excessive accumulation of imbalances in different parts of the economy: in the public sector in Greece, in the housing and banking sectors in Ireland, external imbalances in Portugal and in the banking sector in Cyprus. The paper looks at the feasibility of the fiscal adjustment comparing the macroeconomic conditions in the four countries and emphasising the role of the fiscal multipliers in the process. It also assesses the fall in the output in a comparative framework, stressing the role played by the different components of demand either in amplifying the effect of the fiscal consolidation or in offsetting it. In addition, it considers formulation of the programmes as well as their implementation with most attention devoted to reforms aiming at improving competitiveness, growth and employment in the framework of a cross-country approach.