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European Social Models From Crisis to CrisisEmployment and Inequality in the Era of Monetary Integration$
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Jon Erik Dølvik and Andrew Martin

Print publication date: 2014

Print ISBN-13: 9780198717966

Published to Oxford Scholarship Online: January 2015

DOI: 10.1093/acprof:oso/9780198717966.001.0001

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Eurozone Economic Governance

Eurozone Economic Governance

“A Currency Without a Country”

Chapter:
(p.20) 2 Eurozone Economic Governance
Source:
European Social Models From Crisis to Crisis
Author(s):

Andrew Martin

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198717966.003.0002

Fundamental gaps in EMU’s economic governance structure make it an incomplete common currency area (CCA). These gaps channeled the international financial crisis into a split between its core and peripheral sub-central political units (member states), inflicting enormous economic and social costs on the latter and retarding recovery elsewhere in Europe. The central level of a complete CCA, like the US, has the fiscal and financial regulatory as well as monetary capacities for governing the single economy into which the common currency integrates the sub-central units. All three capacities are essential to counteracting a market economy’s inherent instability. However, EMU’s central level is equipped only with monetary capacity, relegating the other two capacities to its sub-central units. EMU’s governance structure thereby makes them vulnerable to the divergent effects of financial market instability and consequent recession. These effects can only be ameliorated with the central fiscal and regulatory capacities that EMU does not have.

Keywords:   Eurozone crisis, Eurozone governance flaws, incomplete common currency area, fiscal gap, financial regulatory gap, doom loop, bank-sovereign feedback, credit boom-and-bust, banking crisis, macroeceonomic policy failure

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