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Democratic Politics in a European Union Under Stress$
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Olaf Cramme and Sara B. Hobolt

Print publication date: 2014

Print ISBN-13: 9780198724483

Published to Oxford Scholarship Online: December 2014

DOI: 10.1093/acprof:oso/9780198724483.001.0001

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The Insurance Potential of a Non-Optimal Currency Area

The Insurance Potential of a Non-Optimal Currency Area

(p.137) 8 The Insurance Potential of a Non-Optimal Currency Area
Democratic Politics in a European Union Under Stress

Waltraud Schelkle

Oxford University Press

This chapter explores whether the eurozone can survive, given its diversity and an alleged North-South divide, without suppressing democracy in some member states. It answers this question by outlining an insurance view of European Monetary Union (EMU): currency unification has created, more by default than by design, a risk pool and various insurance mechanisms. The notion of insurance implies that diversity is a potential source of benefits from pooling sovereignty among entities that are exposed to different risks. Yet, the insurance potential is far from realized in the present operation of EMU. The most effective shock absorber, a central budget, is missing. Moreover, monetary integration may generate risks of its own that are transmitted more easily by integrated financial markets. The source of the eurozone’s instability is not diversity but increasing interdependence that is left uninsured. A minimum of fiscal integration could provide the necessary insurance and strengthen rather than jeopardize democracy.

Keywords:   currency unification, economic convergence, euro, financial crisis, monetary integration theory, Optimal Currency Area

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