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The crisis in the euro area: an analytic overview

Heather Gibson (), Theodore Palivos and George Tavlas ()

No 28, Special Conference Papers from Bank of Greece

Abstract: This paper provides an introduction to the special issue “The Crisis in the Euro Area”. We take stock of what the euro area crisis has taught us about monetary integration. At the inception of the euro area in 1999, the main parameters of the theory of monetary integration seemed to have been pretty well-settled. Although it was common knowledge that the euro area fell short of fully satisfying all the conditions needed for an optimallyfunctioning monetary union, most politicians and many economists thought that the euro area satisfied enough conditions so that it would not encounter major difficulties. This paper discusses several developments that came as surprises about the conditions needed for monetary unification as the euro crisis unfolded. These developments include the need of an adequate adjustment mechanism, the links between banking and sovereign crises, and the sharp costs of adjustment to adverse asymmetric shocks.

Keywords: Financial crises; euro-area; monetary integration; optimum currency areas; adjustment mechanism (search for similar items in EconPapers)
JEL-codes: E51 E52 F33 F41 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
Date: 2013-07
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Journal Article: The Crisis in the Euro Area: An Analytic Overview (2014) Downloads
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