The Fragility of two Monetary Regimes: The European Monetary System and the Eurozone

Yuemei Ji () and Paul De Grauwe

No 4471, CESifo Working Paper Series from CESifo

Abstract: We analyze the similarities and the differences in the fragility of the European Monetary system (EMS) and the Eurozone. We test the hypothesis that in the EMS the fragility arose from the absence of a credible lender of last resort in the foreign exchange markets while in the Eurozone it was the absence of a lender of last resort in the long-term government bond markets that caused the fragility. We conclude that in the EMS the national central banks were weak and fragile, and the national governments were insulated from this weakness by the fact that they kept their own national currencies. In the Eurozone the roles were reversed. The national central banks that became part of the Eurosystem were strengthened. This came at a huge price, i.e. the fragilization of the national governments that could be brought down by the whims of fear and frenzy in financial markets.

Keywords: Monetary Union; Eurozone; lender of last resort (search for similar items in EconPapers)
JEL-codes: F00 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The Fragility of Two Monetary Regimes: The European Monetary System and the Eurozone (2015)
Working Paper: The fragility of two monetary regimes: The European Monetary System and the Eurozone (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4471

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