Euros(c)epsis - The theory of the optimum currency area and the history of the Euro

Annamaria Artner and Peter Rona

No 199, IWE Working Papers from Institute for World Economics - Centre for Economic and Regional Studies

Abstract: The examines whether the euro crisis can be entirely attributed to factors such as regulatory failure or fiscal indiscipline, as opposed to the mechanisms built into the euro itself. It concludes that the euro contains a built-in bias that would result in the divergence of the path taken by the developed members on the one hand and the less developed ones on the other. The original the optimum currency area („OCA”) theory appears to have been valid, and the departure from it, as embodied in the Maastricht Treaty, amounted to an unjustified departure in light of the experience of the five weak countries of the eurozone (PIIGS). These experiences have proved that after the introduction of the common currency overcoming significant differences in initial conditions seems quite difficult. Only the countries having international companies with very strong positions on the world markets could take advantages of the euro, and the disadvantages resulting from the deterioration in competitiveness were left to the weaker ones. This also implies that the advantages for the stronger countries to the extent actually experienced were enhanced by the competitiveness of the weaker ones.

Keywords: euro crisis; optimum currency area; euro zone; financial market (search for similar items in EconPapers)
JEL-codes: G1 G2 O16 P43 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2012-01
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Persistent link: https://EconPapers.repec.org/RePEc:iwe:workpr:199

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