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The Eurozone:
An Optimal Currency Area?
by Martina Fürrutter

February 2012

IFIERpapers combine theoretical reasoning and academic discussion of current research subjects in the two sub-disciplines of International and European Relations. IFIER publishes outstanding work by students as well as new findings of proven experts. IFIER will publish a special issue periodically. Contributions from political scientists and students outside of Innsbruck are explicitly welcome.

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IFIER Innsbruck
Department of Political Science
Universitätsstrasse 15, A-6020 Innsbruck
Publisher: Doris Dialer; Anja Opitz
Editorial: Doris Dialer; Martina Fürrutter; Anja Opitz; Kerstin Röck Graphics & Layout: Katharina Pohler

ISSN 2226-0080


The Eurozone: An Optimal Currency Area? | Martina Fürrutter


sions if the Eurozone could actually be classified as an optimum currency area and if the decision of unifying various EU member
states under one common currency has been
right. Lately, facing the current monetary crisis, this scepticism has even intensified and

Martina Fürrutter

for this it seems to be the right moment to
throw a light on the EU-OCA discussion once

studies Political Science and International Economic and Business Studies at the University of Innsbruck. 2010-2011 she has been an ERASMUS
student at the University of Zaragoza (Spain).
During the summer term 2011 she was a student
assistant at the Academy for Civic Education
Tutzing. She is momentarily writing her first
Bachelor theses in Political Science on the
Changing role of the European Union in nuclear
non-proliferation policy.

more and to examine the factors for founding
the common currency area.
At f irst this paper will introduce Robert Mundell's theory of an Optimum Currency Area (OCA) and briefly discuss the more general
points of view of his theory. From Mundell's
OCA-theory we will move on to a cost-benefit

In 1961 Robert Mundell published his famous

analysis of monetary integration. Afterwards

article “A Theory of Optimum Currency Are-

several influence factors on integration quali-

as”1 presenting his idea of an optimal mone-

ty of monetary areas will be explained and

tary area in which there should be perfect in-

examined it the face of the Eurozone. This

ternal mobility of factors and external immo-

part of the paper will be based on Paul

bility of factors.

Krugman's and Maurice Obstfeld's case study

Nearly 40 years later, in 1999 the European

“Is Europe an Optimum Currency Area?”,

Union founded its monetary area with the

where they enlist four OCA-criteria which will

common currency the Euro. At f irst it was

be applied in this paper for the analysis of the

used as bank money, but in 2002 the Euro was

Eurozone. F inally we will raise the question if

f inally introduced as banknote and from then

the European Monetary Union (EMU) really is

on it has been used as the EU's means of

an OCA and answer this question in the light


of the EMU-founding-fathers' decision basis.

From the beginning on there were discus-

1. A theory of an optimum currency area


Robert A. Mundell applied the common def i-

R. Mundell (1961): “A Theory of Optimum
Currency Areas,” in: The American Economic
Review 51(4), pp. 657-665.

nition of a currency area as a “domain within


The Eurozone: An Optimal Currency Area? | Martina Fürrutter

which exchange rates are f ixed”2, he was the


f irst to question the appropriate domain of a






currency area, however. For him the optimum
currency area is the region and not the nation, and he strikes the vital importance of a high degree of factor...
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