The Viability Of The EMU: The European Monetary Union Analysis
The Viability of the EMU: The Fiscal Union Debate
The current economic integration of states in the European Monetary Union (EMU) can be seen as a ‘compromise’. A monetary union has been formed, which implemented the same currency in the participating states, whilst still offering countries their own fiscal autonomy. The common currency ought to increase trade and prosperity, and fiscal autonomy is still in the hands of individual governments in order to preserve this fiscal form of sovereignty. However, many economists have argued that the current construction is unsustainable. Arguably, there is a lack of an effective political framework built around the Euro to deal with country specific shocks, spillovers, common fiscal governance and …show more content…
In the last decades we have seen increased amounts of Euroscepticism in Europe, going against the European integration project, and therefore also refusing a common currency. One example is the Alternative für Deutschland (Alternative for Germany Party). “The AfD's launch in early 2013 was all about challenging the eurozone bailouts and rejecting the EU's arguments for keeping the euro” (BBC) The AfD bases its criticism of the Euro on the “ordoliberal economic doctrine” (Grimm 2012 266). According to Grimm this ideology “sits midway between Keynesian interventionism and neoliberalism” (Grimm 2012 266). This means that Ordoliberalism emphasizes the need of a strong state and argues that economic freedom needs political authority (Bonefeld 2012, 633). Therefore, the absence of a strong political authority over the Euro is a major flaw in the eyes of the ordoliberals. It was the ordoliberals in the 1990s that opposed the single currency union for two reasons: Firstly, because Europe is politically and socially too divided to enact a solid political authority for the currency. And secondly because the countries involved do not comprise an Optimum Currency Area (OCA) (Grimm 2012, 266). With regards to their first standpoint, it is true that Europe makes up a challenging area, due to its diversity, and that political integration is hard given the importance of sovereignty within the European Union. But their argument about the OCA, is questionable, given the debate about the theory. According to McNamara for example, the concept is incomplete, as it “misses an account of political institutions and conditions that allow for a single currency to be successful” (McNamara … 22). Furthermore, considering the criteria, “no currency union in history, whether successful or not, has actually met all of the requirements of optimum currency area theory”. (McNamara … 25). Given that no currency
The current economic integration of states in the European Monetary Union (EMU) can be seen as a ‘compromise’. A monetary union has been formed, which implemented the same currency in the participating states, whilst still offering countries their own fiscal autonomy. The common currency ought to increase trade and prosperity, and fiscal autonomy is still in the hands of individual governments in order to preserve this fiscal form of sovereignty. However, many economists have argued that the current construction is unsustainable. Arguably, there is a lack of an effective political framework built around the Euro to deal with country specific shocks, spillovers, common fiscal governance and …show more content…
In the last decades we have seen increased amounts of Euroscepticism in Europe, going against the European integration project, and therefore also refusing a common currency. One example is the Alternative für Deutschland (Alternative for Germany Party). “The AfD's launch in early 2013 was all about challenging the eurozone bailouts and rejecting the EU's arguments for keeping the euro” (BBC) The AfD bases its criticism of the Euro on the “ordoliberal economic doctrine” (Grimm 2012 266). According to Grimm this ideology “sits midway between Keynesian interventionism and neoliberalism” (Grimm 2012 266). This means that Ordoliberalism emphasizes the need of a strong state and argues that economic freedom needs political authority (Bonefeld 2012, 633). Therefore, the absence of a strong political authority over the Euro is a major flaw in the eyes of the ordoliberals. It was the ordoliberals in the 1990s that opposed the single currency union for two reasons: Firstly, because Europe is politically and socially too divided to enact a solid political authority for the currency. And secondly because the countries involved do not comprise an Optimum Currency Area (OCA) (Grimm 2012, 266). With regards to their first standpoint, it is true that Europe makes up a challenging area, due to its diversity, and that political integration is hard given the importance of sovereignty within the European Union. But their argument about the OCA, is questionable, given the debate about the theory. According to McNamara for example, the concept is incomplete, as it “misses an account of political institutions and conditions that allow for a single currency to be successful” (McNamara … 22). Furthermore, considering the criteria, “no currency union in history, whether successful or not, has actually met all of the requirements of optimum currency area theory”. (McNamara … 25). Given that no currency