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Why Does Euro’s Survival Matter? Financial Integration in East Asia and European Union

Akira Kohsaka

No 24E001, OSIPP Discussion Paper from Osaka School of International Public Policy, Osaka University

Abstract: A breakup of Euro Zone appeared likely in the aftermath of the Global Financial Crisis (GFC), while EU has long been model regional integration to East Asia. Recognizing different political-economic contexts between East Asia and EU,what can we learn from the experiences of Euro Zone so far? This paper tries to answer the question by examining regional financial integration in two regions in view of international macroeconomics. Financial globalization since the 1990s plays the key role there. We can summarize our observations as follows:East Asia’s fundamental strength shown throughout GFC implies weak motivation to promote further regional financial integration toward a monetary/fiscal union as EU. The global sudden stop of capital inflow by GFC seriously damaged vulnerable links in Euro Zone, although crisis-driven policy innovations seem to strengthen its macro-financial policy framework. As to the future role of Euro Zone, at issue is the volatility intrinsic to the global financial market, which would aggravate the asymmetry across currencies, potentially harming resource allocation and growth. Post-Bretton Woods flexible exchange rates could not wipe away, but magnify this asymmetry (i.e. US dollar dominance). The Euro and Euro Zone could challenge this fundamental flaw of the present international monetary system.

Keywords: regional integration; East Asia; Euro Zone; financial globalization (search for similar items in EconPapers)
JEL-codes: E5 F3 F41 G15 O11 O16 P51 (search for similar items in EconPapers)
Pages: 34pages
Date: 2024-05
New Economics Papers: this item is included in nep-eec, nep-eur, nep-fdg, nep-ifn, nep-mon, nep-opm and nep-sea
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