EconPapers    
Economics at your fingertips  
 

Alternative interpretations of a stateless currency crisis

Sergio Cesaratto ()

Cambridge Journal of Economics, 2017, vol. 41, issue 4, 977-998

Abstract: A number of economists warned that a political union was a prerequisite for a viable currency union. This paper disputes the feasibility of such a political union. A fully fledged federal union, which would likely please peripheral Europe, is impracticable since it implies a degree of fiscal solidarity that does not exist. A Hayekian minimal federal state, which would appeal to core Europe, would be refused by peripheral members, since residual fiscal sovereignty would be surrendered without any clear positive economic and social return. Even an intermediate solution based on coordinated Keynesian policies would be unfeasible, since it would be at odds with German ‘monetary mercantilism’. The euro area is thus trapped between equally unfeasible political perspectives. In this bleak context, austerity policies are mainly explained by the necessity to readdress the euro area balance-of-payments crisis. This crisis presents striking similarities to traditional financial crises in emerging economies associated with fixed exchange regimes. Therefore, the delayed response of the European Central Bank (ECB) to the sovereign debt crisis cannot be seen as the culprit of the euro area crisis. The ECB’s monetary refinancing mechanisms, Target 2 and the ECB’s belated Outright Monetary Transactions intervention impeded a blow-up of the currency union, but could not solve its deep causes. The current combination of austerity policies and moderate ECB intervention aims to rebalance intra-eurozone foreign accounts and to force competitive deflation strategy.

Keywords: European crisis; Political and currency unions; ECB; Balance-of-payments crisis; Mercantilism (search for similar items in EconPapers)
JEL-codes: E11 F33 N14 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://hdl.handle.net/10.1093/cje/bew065 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Alternative interpretations of a stateless currency crisis (2016) Downloads
Working Paper: Alternative Interpretations of a Stateless Currency crisis (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:cambje:v:41:y:2017:i:4:p:977-998.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Cambridge Journal of Economics is currently edited by Jacqui Lagrue

More articles in Cambridge Journal of Economics from Cambridge Political Economy Society Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2025-03-22
Handle: RePEc:oup:cambje:v:41:y:2017:i:4:p:977-998.