On the crisis of the EMU: Failed construction, failed implementation or failed crisis management?

László Csaba*

*Corresponding author for this work

Research output: Contribution to Book/Report typesChapterpeer-review

Abstract (may include machine translation)

There is an overall feeling of crisis in the Economic and Monetary Union (EMU), and libraries have been produced in an attempt to identify the roots of the malaise. The three propositions, equally present in academia and in the policy discourse, are to some degree mutually exclusive, and to some degree, complementary. But before jumping in medias res in discussing each, one needs to observe that the single currency has proven to be an unprecedented success in its own terms. While Helmut Kohl was often ridiculed in his time for the claim that the euro is going to be “as stable as the D-Mark”, this has proven to be the case. None of the dangers feared from the very outset (i.e of inflation – over 3 per cent – or deflation–the decline of the general price level, reflected in the HICP) has actually materialized. While for short periods both phenomena occurred, for the period of four 1 consecutive quarters, as defined by the European Central Bank (ECB), it has never happened. Annual inflation fluctuated between 0.5 and 2.6 per cent in the period between 1999 and 2014. This is above the pedantic interpretation adopted by the ECB in 2003 of 2 per cent or less. But it is in line with practical policy needs and established financial and business standards, while avoiding the ruinous relapse into deflation, as feared by many, especially during the great recession of 2007–2009. 2 The external value of the euro – yet another subject of heated debate – fluctuated between 0.85 and 1.55 against the greenback, and this flexibility has proven right. The accumulated capital and current account balance of the Eurozone never went beyond plus or minus 1 per cent of the total, thus reflecting an ideal equilibrium position that tended to be different by the year. Thereby the major requirements set by exchange rate theory were fulfilled.

Original languageEnglish
Title of host publicationA Global Perspective on the European Economic Crisis
PublisherTaylor and Francis
Pages68-78
Number of pages11
ISBN (Electronic)9781317281177
ISBN (Print)9781138189089
DOIs
StatePublished - 1 Jan 2018

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