The Euro as an Optimum Currency Area? A Reappraisal

Moritz Pfeifer and Gunther Schnabl

No 12675, CESifo Working Paper Series from CESifo

Abstract: This paper reassesses whether the euro area satisfies the criteria of an optimum currency area. It contrasts early hopes of convergence with subsequent developments marked by persistent heterogeneity across member states. Differences in economic structures, fiscal policies, and financial cycles have produced asymmetries that a single monetary policy cannot offset. Labor mobility and fiscal integration remain limited, shifting adjustment burdens onto prices, wages, and financial flows. Credit expansion and later retrenchment amplified divergence, culminating in the sovereign debt crisis. Since then, cohesion has relied heavily on unconventional monetary policies and fiscal support mechanisms, with notable effects on inflation dynamics, growth performance, and income distribution. The analysis concludes that the euro area has not evolved toward optimality and faces rising risks unless institutional reforms or structural changes are undertaken.

Keywords: optimum currency area; European Monetary Union; economic convergence (search for similar items in EconPapers)
JEL-codes: E52 F33 F45 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12675

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