The Economic and Monetary Union (EMU) was primarily designed in the Treaty of the European Union (TEU) in 1991 at Maastricht as an outcome of bargaining among governments (Moravcsik, 1998; Hosli, 2000). The unique project was completed in 1999 when the Euro became the official currency for the first eleven European countries. In 2000, the Council declared that Greece fulfilled the four Maastricht economic criteria and became the twelfth member of the EMU. Even though, in 2000 the third stage of the Delors Report was successfully completed, from 1989 many scholars expressed their doubts about the usefulness and the long run sustainability of the remarkable and unprecedented European project. During the last twenty years they have mainly used the Optimal Currency Area (OCA) theory as an analytical approach in order to evaluate whether or not EMU is sustainable in the long run. According to their conclusions, the EMU is not regarded as an OCA and thus they adopted a more skeptical and critical perspective about its viability (Krugman and Obstfeld, 2003; Eichengreen, 1990; Feldstein, 1992; Caporale, 1993; Baldwin and Wyplosz, 2006). However, the vast majority of these studies lack two research elements important for the entire evaluation of the EMU. They ignored that the monetary unification can be analyzed not only as an economic but also as a political and evolutionary phenomenon. These studies fail to interpret many of the most important political and economic events within EMU. For example, the demise of the Stability and Growth Pact (SGP) in 2003 and the French and Dutch refusal of the European Constitution. In order to analyze and evaluate the Eurozone’s last ten years, one needs not only economic, but also political-economic theories. The conjunction of economic and political theories like the OCA and the explicit national preferences theory is regarded as the most valuable analytical tool in order to analyze the Eurozone today. In this way the ignoring of important political and economic elements of European unification is avoided . For example, this essay will use Andrew Moravcsik’s (1993) liberal intergovernmentalism theory to demonstrate a more explicit argument for the European experiment. The project was at risk during the global financial and economic crisis that started in 2007 in the United States (US). The crisis revealed not only the theoretical and systemic worries for the evolution, and long run sustainability of EMU, as an ideal construction and as a mode of governance, but also many tangible turbulences like the Greek financial and economic crisis that started in 2009. The Greek financial crisis is not only related with domestic vulnerabilities but also with the European political and economic environment. In this sense, one can argue that the Eurozone suffers from important deficiencies and flaws that negatively affect not only its mode of governance but also its survival (De Grauwe, 2009a). Thus, this essay will be devoted in order to examine why the Eurozone during 2010, in contrast with the European commission’s desire, is not regarded as a successful paradigm of economic integration. Why Greece failed to be competitive within the European environment and why there is no reason for us to believe that its future is not obscure? This essay will begin by providing some theoretical foundations for the EMU. It will then go on the analysis of what went wrong in the Eurozone since 1999, firstly, by describing the main European gaps. Secondly, the next section will examine the main problems within the Eurozone. On the one hand, these flaws can take the form of the unfulfillment of the OCA criteria like inter alia the possibility of asymmetric shocks, the role of labour markets, and the effect of openness and production diversification, the lack of fiscal transfers and the deficiency of coordination in monetary and fiscal policy. It will evaluate how close the European countries are to the satisfaction of the OCA criteria. On the other hand, these deficiencies are related with the wider institutional weakness within EMU, the lack of political union and the shortage of solidarity. The second section will evaluate what went wrong in Greece. It will examine to what extent the Greek crisis was caused from European deficiencies and flaws and to what extent was caused from the Greek domestic political and economic vulnerabilities. In this study, I will argue that even though the Eurozone has developed a more integrated and more efficient market that increased the economic growth and prosperity the last ten years, these gains have not distributed equally across the European region. As it will be stated, for some member states like Greece, the participation within EMU is painful because not only there are significant gaps between member states but also because Greece was not able to participate effectively. Thus, the real ability for an effective participation is totally differentiated from the satisfaction of the Maastricht’s criteria and the implementation of the SGP’s orders. Both Greek and European politicians naively or not, ignored that Greece does not fulfill any of the OCA criteria for membership. As a result, Greece trapped not only from its own domestic political and economic flaws but also from the European political and economic environment in which the large member states continue to pursuit their own national preferences and interests.
2. Theoretical Foundations of EMU
According to Balassa (1961), economic integration can be classified in five stages namely i) free trade area ii) custom union iii) common market iv) economic union and v) complete union. In this respect, an economic union is characterized by the harmonization of national economic policies and a complete union involves the unification of monetary, fiscal, social, and countercyclical policies under the control of supranational authority. EMU is regarded as an inexplicit and problematic combination of the fourth and fifth stage of economic integration. At the same time it recognizes the existence of a supranational monetary authority of the European Central Bank (ECB) and the power of states to pursue their own policies especially in the fiscal domain.
Robert Mundell (1961) made evident that a monetary union is created when the states acknowledge that the advantages from their participation in a monetary union are exceed the costs . During 90’s, many scholars identified that the establishment of the internal market and subsequently the EMU could create not only to the member states but also to their citizens many economic advantages and benefits . There can be identified many positive factors that affect the final decision for the participation in EMU, like the lower transaction costs, the efficiency of the market, the greater economic certainty, the lower interest rates, and the higher economic growth (Eichengreen, 1990; De Grauwe, 2003). However, these positive factors have been contested by some of the most prominent scholars (Krugman, 1998) .
In terms of costs, the participation in the EMU entails the loss of two of the most powerful macroeconomic tools namely the exchange and interest rates. As Hix (2005, p.309) states, in a monetary union ‘exchange rates are fixed and there is a one size fits all interest rate policy’. Therefore, any time that an asymmetry happens, the states are unable to use the aforementioned tools. Whereas, they have the option to use either labour mobility, wage flexibility, fiscal transfers or their budget deficits, as it will be discussed to the next section this is also an overestimated option. For some scholars EMU is ‘much less well equipped’ than its American counterpart (Tobin 2001, p. 33). Not only EMU lacks a federal government with possible fiscal responses (Tobin, 2001) but also as Salvatore (1997) believes, a severe asymmetric shock could ruin the union because of its limited labour mobility, and inadequate fiscal redistribution.
Hix (2005, p.312), acknowledges ‘two other implications of currency union that must be placed alongside the potential economic costs and benefits: A single voice in the global economy […] a step towards political union’ . The last potential of the creation of political union can be treated either as matter of ‘functional necessity’ or as final target that the member states of the EU will ‘intentionally pursue’ (Hodson 2009, p.509). Even though, a political union is possibly based on economic benefits there are many other political constraints by the ‘publics and governments political preferences like inflation, unemployment, wage levels and labour market policies’ that narrow the possibility of the creation of the European political union (Hix 2005, p.313). Consequently, the participation in EMU or the subsequent creation of a European political union it is not only a matter of economic but also of political preferences.
It is not surprising that the debate about the effectiveness and the survival of the Eurozone today is mainly based on such calculations and constraints. The EMU, as Bladen-Hovel (2007) argues, was focus on nominal convergence and fiscal discipline. According to him ‘the criteria laid down by the TEU may be considered arbitrary and divorced from the underlying real factors that determine the ultimate success’ (Bladen-Hovell 2007, p.254) . As Moravcsik (2008, p.158) states today ‘the fundamental issue facing European unification is no longer to comprehend where it is going, but to grasp what it is’. According to Artis (2007, p.276), ‘it is not difficult to see that continued tensions can arise from the continuation of asymmetries and of non-convergence, and that circumstances could present themselves which would exacerbate these’. In this respect, Lapavitsas et al. (2010, p. 7) describes the Eurozone’s problem in an excellent way:
‘The integration of peripheral countries in the Eurozone has been precarious as well as rebounding in favour of Germany. The sovereign debt crisis has its roots in this underlying reality rather than in public profligacy in peripheral countries. When the crisis of 2007-9 hit the Eurozone, the structural weaknesses of monetary union emerged violently, taking the form of a public debt crisis for Greece, and potentially for other peripheral countries’.
In this sense, given that the model of the EMU is weak and there is an institutional lack in its design (Feldstein, 1992; Feldstein 1997a; Feldstein 1997b) one could argue that the success or failure of the Eurozone is mainly based not only on political and economic calculations but also on political will (Bordo and Jonung, 1999).
3. What went wrong in Europe?3.1 Main gaps in Europe
As it has been stated in the introduction, the EMU is not regarded as an OCA. Among member states there is a significant gap in economic capacity and functionality. One can observe four main imbalances within the Eurozone’s economic performance in i) the rate of economic growth ii) the rate of unemployment iii) the public sector deficits and debts, and iv) in labour productivity. It can also be argued that the global financial and economic crisis of 2007 deteriorated the economic divergencies between the member states especially on competitiveness and current account positions (European Commission, 2009a; European Commission, 2010b).
Table 1. GDP
Source: ECB (2010d).
Figure 1. GDP growth rates
Source: Lapavitsas et al. (2010).
More specifically, it is clear that the Euro area has not consolidated the economic growth within EMU (Table 1). The last ten years, even though it can be observed a convergence in GDP growth rates (Figure 1), there is a significant gap between the member states mainly because the convergence was the outcome of some special conditions, like the Olympic Games in Greece and not the outcome of real structural economic developments.
Furthermore, it is clear that there is a significant gap within the Eurozone in employment growth rates (table 2). In addition, it is clear that the impact of global financial crisis on member states was different. As long as at the end of 2009 the unemployment rate in the Eurozone was 10%, the biggest ever, more differences and asymmetries in unemployment policies, in Greece, Ireland and Spain and Germany and Italy, can be observed within EMU (ECB, 2010a). It can be argued that this is not only a sign of the lack of coordination in unemployment and employment policies within the Eurozone but also a sign of how the member states follow their national preferences within the EMU.
Table 2. Employment growth in the EUSource: European Commission (2009c).
In addition, it can be observed that from 1995 to 2008, the increase of labour productivity not only for countries that belong in European periphery but also for Germany with the exception of Ireland was modest (Figure 2). From the same figure it can also be noticed that there is a significant gap in labour productivity within the Eurozone. Thus, it is believed the productivity rate within the EMU was not as enough as it was needed in order to cover the great differences in growth between the Eurozone countries (Lapavitsas et al., 2010).
Figure 2. Labour productivity
Source: Lapavitsas et al. (2010).
Furthermore, one can notice major gaps in fiscal positions within the euro area. It can be said, that the major causes for these fiscal gaps are the structural and intrinsic weaknesses between the member states. Moreover, few countries within the Eurozone had satisfied the SGP’s criteria of 60% and 3% of government debt and deficit respectively (Table 3 and 4). Thus, in 2009 only Luxemburg and Finland satisfied the criterion of deficit and only Spain, Cyprus, Luxemburg, the Netherlands, Slovenia, Slovakia and Finland the criterion of debt.
Table 3. General government budget balanceSource: Darvas (2009).
Table 4. General government gross debt Source: Darvas (2009).
Under the aforementioned conditions, the global crisis that started in the US deteriorated the confidence and trust of the European citizens (ECB, 2010a). In this sense, as the main gaps in the euro area remain, there is an increasing potential for recurrent and repeated asymmetric economic shocks among the member states. As Hix (2005, p. 342) believes ‘EMU’s real test will be to manage these differences, especially in the face of continued divergence in economic cycles, a major asymmetric demand shock or a European wide recession’. Lapavitsas et al. (2010, p. 5) observes that ‘the integration of peripheral countries in the Eurozone has thus been precarious, leaving them vulnerable to the crisis of 2007-9 and eventually leading to the sovereign debt crisis’. Consequently, it is now clear how the structural and intrinsic differences among the member states within EMU could imply not only a liquid environment vulnerable to crises but also the future demise of the EMU.
3.2 Main problems3.2.1 Asymmetric and adverse shocks in Euroland?
An economic shock is asymmetric when it affects different economic areas divergently. Both asymmetric and adverse shocks are painful for economic performance and they are related not only with exchange rates but also with wage and price rigidities and labour and capital mobility (Baldwin and Wyplosz, 2006) . In this sense, there exist six different criteria that one can use to evaluate not only the economic performance and the long run stability and viability of EMU but also the optimality of the monetary union. These are the Mundell’s (1961) criterion for labour mobility, the Kenen’s (1969) criterion for production diversification, the McKinnon’s (1962) criterion for openness, the transfer criterion, the homogeneity of preferences criterion and the criterion of solidarity. It could be said that the Eurozone does not satisfy any of the main conditions for optimality (Fink and Salvatore, 1999; Gillingham, 2003). Thus, the EMU is not regarded as an OCA in which an asymmetric or an adverse shock can easily be absorbed by flexible prices and wages or labour and capital mobility.
The aforementioned fact creates severe problems for the Eurozone’s economic performance because EMU’s fundamental flaw is that whatever policy is taken by transnational authorities is not an optimal policy for all the countries. One solution for this problem is the greater liberalization of the financial markets but as De Grauwe (2009a and 2006) believes this is too optimistic idea. Indeed, De Grauwe (2009a) proposes three conditions for a successful EMU 1) symmetry, 2) flexibility and 3) integration. Even though, EMU offers stable conditions for legitimated liberalization in financial markets (Capiello et al. 2006), it does not promote sufficient conditions to financial markets in order to overcome the absence not only of the rigidities and immobility but also the absence of a centralized fiscal system or an expanded EU budget able to provide insurance against asymmetric shocks (Morris et al. 2007). Consequently, it is believed that the long-run success of the Eurozone is related with the existence of a mechanism that could share funds among the member states (Jovanovic, 2005)
But how possible is an asymmetric or an adverse shock in Euroland? Adverse or asymmetric shocks are happened in regular basis within EMU. For example, the infringements of the SGP, the differences in competitiveness, and differences in macroeconomic fundamentals, like the inflation rate across countries imply the regular existence of an asymmetric shock. Moreover, there are differences in structural reforms that affect the rate of divergence within the Eurozone and make an asymmetric shock more possible. It could also be said that the most of the times the growing asymmetric shocks are the outcome of the member state’s ambition for an unfettered national economic policy. As De Grauwe (2010e, p.172) states ‘Large areas of economic policies remain in the hand of national governments creating asymmetric shocks that undermine the sustainability of the monetary union’. In this sense, De Grauwe (2002) believes that within an enlarged EMU the prospect of asymmetric shock grows substantially as many countries could experience a boom and many others a bust . Consequently, it can be argued that the creation of an asymmetric shock is the outcome of divergencies in national economic policies and in economic performance which can cause major implications to the stability of the euro area (De Grauwe, 2009a).
3.2.2 Labour Markets
As it mentioned above labour mobility is one of the key factor for EMU’s success. Labour markets play an important role in currency areas because as Hix (2005, p.338) states ‘a monetary union should be able to adapt to asymmetric economic cycles either through labour movement from states in recession to states in high growth, or through reductions in wage and labour costs in states in recession’. Member states can promote structural labour market reforms in order to strengthen wage and price flexibility and mobility . However, within EMU not only the degree of labour market flexibility is relatively low, but also the wages are inflexible and the implementations of employment regulations are absent (Hix, 2005). It can also be noticed that there is a substantial gap in labour mobility between the EU and the US . As Eichengreen (1993, p.132) states ‘the elasticity of migration with respect to interregional wage differences is a least five times as large for the US as for Britain’. Thus, when an asymmetric shock happens, both labour and wages remain immobile and stable respectively. Interestingly, the EU is unable to use either labour mobility or wage flexibility to confront with asymmetric shocks and financial crises.
Moreover, some authors believe that monetary unions like the EMU stand unable to increase the flexibility of labour markets (Sibert and Sutherland, 2000; Soskice and Iversen, 2001). It is not given whether the eurozone has created more flexible labour markets (De Grauwe, 2006). However, if this is the case, member states within the Eurozone cannot use labour mobility as an efficient adjustment mechanism and thus the Eurozone’s long run effectiveness is constrained . Furthermore, as the figure 3 demonstrates there are significant divergencies between the member states in compensation per employee, labour productivity and nominal unit labour costs. As Lapavitsas et al. (2010, p.21) argues for the importance of labour policy it
‘has been one of the few levers available to different countries to improve external competitiveness. Therefore, the effects of labour market policies have varied profoundly among different Eurozone countries. Core European countries are characterised by high real wages and strong social policies, while peripheral countries typically have low real wages and weak welfare states. Political and trade union organisation also differ substantially among Eurozone countries. All Eurozone countries have joined the race of imposing labour market flexibility and compressing labour costs, but from very different starting points’.
Thus, the European Commission (2009a, p.33) observes that ‘in some member states wage growth has been outpacing productivity growth for some time (Spain, Portugal, but also Belgium, Ireland, Italy)’. Consequently, it is clear that even though labour markets are very important for the EMU’s optimal performance, many important elements for optimality like the wage and price flexibility as well as labour mobility are absent.
Figure 3. Compensation per employee, labour productivity and nominal labour costsSource: European Commission (2009a).
3.2.3 Openness and Production Diversification
Even though it is believed that within a currency union the trade between the members is increased (Rose, 2000), many other studies have proven that the degree of trade integration is not the optimal one for monetary unions like the EMU (Melitz, 2001; Bun and Klaassen, 2002; Micco et al. 2003). In contrast with the European Commission, Paul Krugman (1991) believes that a possible outcome of economic integration could be the greater centralization of economic movements to specific geographical areas. A phenomenon that could not only increase the possibility of an asymmetric shock but also the costs within the Eurozone. Thus, the figures 4 and 5 demonstrate the changes in unemployment and openness rates for the major industrial countries and the trade-weighted relative unit labour costs in the euro area. One can notice two important observations: 1. there are major divergencies between EMU’s member states and 2. The Greek economic performance shows that Greece was totally incapable to cope and participate within EMU. It could be said that the last fact was omitted from the European political leaders.
Figure 4. Changes in the rate of unemployment and in opennessSource: European Economy (2005).
Figure 5. Trade-weighted relative unit labour costs in the euro area
Source: European Economy (2006).
3.2.4 Fiscal Transfers
As it discussed earlier, an economic shock is a regular phenomenon within the Euro area. According to Eichengreen et al. (1990) the possibility of an asymmetric shock is greater in the EU than in the US, thus the EU needs the fiscal transfers more than the US. This fact creates the need for interstate fiscal transfers which are associated with the macroeconomic conditions (Sala-i-Martin and Sachs, 1991; Eichengreen, 1994; McKay, 1999; Crowley, 2001; Wildasin, 2002). However, as Jovanovic (2005, p.60) state the EU ‘unlike in the US, there is no fiscal element in the deal. Automatic fiscal transfers as built-in stabilisers do not exist’. Thus, not only no European representative for fiscal policies can be found (Dominguez, 2006) but also it is clear that within the Eurozone none redistributive system exist in order to compensate the negative asymmetries (De Grauwe, 2009a).
Moreover, one can argue that there is a pressure not only for an increasing centralization of the European budget but also for the harmonization of tax rates. In this sense, as De Grauwe (2010e, p.173) states ‘spending and taxation decisions are backed by an elaborate process that is deeply embedded in national democratic institutions’. Therefore, there is a need for an economic institution that could organize not only the monetary but also the budgetary and fiscal policies in the Eurozone (Verdun, 2007). As a result, one of the most important deficiencies within the EMU is the dissatisfaction of the transfer criterion because of the lack of a fiscal institution that could redistribute the effects of negative economic asymmetries.
3.2.5 Coordination of Monetary and Fiscal Policy
In addition, the fact that the planning of monetary policy is organized in the transnational level and the implementation of fiscal policy is designed in the national level is one of most important structural flaws within EMU (Bini Smaghi and Casini, 2000; Buti et al. 2001; De Grauwe, 2010c; Way, 2000). The absence of this ‘policy mix’ coordination is one of the two factors that influence the successful performance of the Eurozone (McNamara 2005, p.155) . Even though, in 1970’s the Werner Report provided the idea that the Eurozone needs a coordination of economic policies for an effective EMU (Werner, 1970), there is a substantial political unwillingness that prevent such coordination (Hix, 2005). Clearly, one could also argue that ‘a one size fits all monetary policy that cannot accommodate regional variations and lacks adequate mechanism for fiscal transfers will impede rather than promote efficient operation of the internal market’ (Gillingham 2003, p.269). Thus, ‘this imbalance leads to creeping divergencies between member states and there is no mechanism to correct or to alleviate them’ (De Grauwe 2010c, p.3).
The severity of these asymmetries can be observed in Figure 6 which shows the relative unit labour cost in the Eurozone. The last eleven years Germany followed a totally different wage moderation policy than its European counterparts (De Grauwe, 2009b; De Grauwe, 2010e). These differences in labour costs within the euro area, not only had a direct effect on productivity but also in intra euro-area real effective exchange rate (Table 6).
Figure 6. Relative unit labour costs in EurozoneSource: De Grauwe (2010c).
Table 6. Changes in intra euro-area Real Effective Exchange Rate
Source: European Commission (2009a).
It is observed that Germany, Finland and Austria the last eleven years are in a much more competitive position than Greece, Ireland, Italy, Portugal and Spain whose competitiveness decreased more than 10%. Thus, as European commission (2009a, p.35) states ’Persistent divergence in competitiveness is a matter of common concern as intra euro-area adjustments to external imbalances work slowly, are costly and can have negative spill-over effects across Member States. Effective functioning of EMU calls for early detection of these external imbalances in order to prompt an adequate and timely policy response’. As a result, one can argue that not only the last ten years many member states have deteriorated their positions vis-à-vis with Germany but also that the coordination of monetary and fiscal policy in the European level failed.
3.3 Institutional Weaknesses
3.3.1 The case of the Stability and Growth Pact (SGP)
The SGP were adopted in 1997 in order to reinforce the limits of the fiscal autonomy of the member states and to stop the ‘free riders’ (Horstmann and Schneider, 1994). However, its main problem as Hix (2005, p.335) argues is that ‘it lacks a particular mix of monetary and fiscal policies, whereby the ECB pursues a restrictive monetary policy, while national governments are forced to pursue restrictive fiscal policies’. The aforementioned problem creates a series of negative outcomes: i) when there are asymmetric economic cycles, the chosen interest rates from ECB will significantly differ from those needed for a small member and at the same time the member state will not be able to take any kind of loan to boost its economy ii) when the ECB choose to follow a tight monetary policy with limitations on budget deficits, the member states are not able to launch structural reforms (Hix, 2005).
Furthermore, as McNamara (2005, p.156) argues ‘although the SGP has the word growth in its title, it is not likely to promote growth, but rather to be excessively restrictive’. Moreover, it can also be argued that the SGP needs to monitor not only the dynamics of debt but also the sustainability of growth (Padoan, 2010). Under the aforementioned conditions the SGP is a poor and unsustainable institutional foundation which is related with the lack of accountability of the Commission (De Grauwe, 2010e). He states, ‘Each time a conflict arises between the Commission and the national governments, the former is bound to loose’ (2010e, p. 173). Moreover, it is believed that the SGP’s limits are testified as an arbitrary .
Many countries not only exceeded its appropriate levels but also with creative accounting, like the Greek case, tried to befool the commission. Thus, according to Hix (2005, p.336) ‘in practice the pact was not a credible way of coordinating national fiscal policies and European level monetary policies in a monetary union with divergent economic cycles, as governments would always respond to their voter preferences first’. As a result, the aforementioned analysis shows that not only it exists an inherent contradiction within EMU that affect the Eurozone’s outcome but also that the SGP has a vulnerable and breakable institutional framework that undermines its long run sustainability.
Table 7. Public debt-to-GDP ratios in the euro area
Source: European Commission (2009a).
3.3.2 The ECB
The first problem is related with the accountability, credibility, transparency, and reputation of the ECB which is solely responsible to determine monetary targets like the inflation rates and money supply . As Hix (2005, p.330) states ‘Without an established reputation, public opinion in states that suffer asymmetric shocks is likely to turn against the ECB quicker than it would against a national central bank’. In this respect, one can argue that the assertion that ECB’s independence promotes economic growth and stability in the long-run is wrong (McNamara, 2002). However, the last crisis in the Eurozone is not so much related with credibility, transparency and reputation of the ECB but mainly because there is no a common settlement between politicians and central bankers for the management of monetary and fiscal policy. As Hix (2005, p.331) states ‘without a binding commitment by and clear incentives for the governments to abide by these contracts, the credibility of these coordination efforts is questionable’.
Moreover, as it stated earlier the Eurozone suffers from the gaps in economic growth, unemployment, debts and deficits which are related with substantial asymmetries in the Eurozone. If this is the case it can be argued that any member state needs specific economic policy that is significantly differentiated from the others. When the ECB’s Executive Board follows the method of ‘one member, one vote’ and the economic cycles among the large and small counties are unequally allocated then severe conflicts and crises can be arisen (Bindseil, 2001). It is very difficult to imagine that this deficiency can be overcome with the new voting rules. Instead, the new rules could deteriorate the position of the small member states that stand unable to be compared with the large countries. Thus, this deficiency is not damaging only for the small members like Greece during recession in which Greece does not have a representative on the Council (Baldwin et al. 2001) but stands in general.
Furthermore, many scholars have argued that the ECB’s role to promote price stability first and solely is catastrophic for the economic growth and economic development in Eurozone . The global financial crisis that started in 2007 created ambiguities whether the price stability target is beneficiary in the long run (De Grauwe, 2008). According to Artis (2007) the ECB is regarded as an inflation targeting central bank and this fact has gained considerable criticism . In his words ‘The Maastricht Treaty does not invite the ECB to Trade off growth-stimulating measures against those designed to ensure price stability’ (2007, p.269).
In addition De Grauwe (2002) believes that the ECB’s asymmetric inflation target of 0-2% is too precise and too inflexible and it could create not only deflationary forces but also it could increase unemployment structurally. The figure 7 demonstrates the inflation rate in the euro area which the most of the times is different than the ECB’s target. Moreover, De Grauwe (2009b, p.6) argues that ‘the ECB monetary strategy which is consisted in keeping inflation low by controlling the growth rate of money stock failed dismally’. In this respect, one can notice that from 2001 Germany had the less inflation rate in Eurozone (Lapavitsas et al. 2010). Thus, the ECB’s strategy becomes less credible whilst it could have copied the US Federal Reserve strategy during 1990’s (Artis and Allsopp, 2003).
Figure 7. Euro area inflation
Source: ECB (2010b).
Furthermore, the ECB can be accused for the late responses during crises. In this sense, ‘the ECB was widely criticized for reacting ‘too little too late’, and observes drew unfavorable parallels with the more drastic and swifter interest rate cuts promoted by the Federal Reserve’ (Artis 2007, p.270). Furthermore, it could also be said that during the 2007 global crisis the ECB was simply an observer while the interest rates were increasing, and financial institutions were speculating against the public debt (Lapavitsas et al. 2010). As De Grauwe (2010e, p.169) believes ‘by focusing almost exclusively on price stability, the ECB put too little emphasis on trying to clamp down on the emerging bubbles and the explosion of bank credit’.
Moreover, as De Grauwe (2010d) and Wolf (2010) believe the ECB’s economic orthodoxy makes the exchange rate policy of the Eurozone harder. Therefore it becomes more difficult to deal with the internal disequilibria within the Eurozone among the deficit and surplus states. As a result, one could argue that not only the euro is not function in a ‘well-developed institutional framework’ (McNamara 2005, p.158) but also that
‘The institutions of the eurozone are more than plain technical arrangements to support the euro as domestic common currency as well as world money. Rather, they have had profound social and political implications. They have protected the interests of financial capital by lowering inflation, fostering liberalisation, and ensuring rescue operations in times of crisis. They have also worsened the position of labour compared to capital. Not least, they have facilitated the domination of the Eurozone by Germany at the expense of peripheral countries’ (Lapavitsas et al. 2010, p. 6)
3.3.3 Political Union and the solidarity criterion.
Under certain circumstances, a political union as a final outcome within EMU is highly desirable. However, the lack of concurring political union is the most severe deficiency within the Eurozone (De Grauwe, 2009a; De Grauwe, 2006; De Grauwe, 2008; De Grauwe 2009b; De Grauwe 2010c; De Grauwe 2010e). The political union not only makes the membership less costly (fiscal transfers, budget centralization) but also it reduces the asymmetries that emanate from political conflicts (De Grauwe 2009a). Thus, its absence is regarded as a major failure accountable not only for coordination but also for asymmetric failures. However, EMU has little possibilities to construct an ever closer political union. One of the main reasons for this is that the citizens of the EU do not seem to share a feeling of mutual perspective that surpasses many of the nationalist propensities. The other is the political unwillingness to do it.
As Dominguez (2006, p.68) observes ‘European economic integration is built on a group of countries each of which wants to stay largely as it was before integration […] many citizens in Europe are still grappling with the question of how truly unified they care to be’. There is an absence of the ‘deep variable’ (De Grauwe, 2009b) that is highly related with the solidarity criterion. As De Grauwe (2006, p.723) states ‘A union in which member states show zero solidarity for the plight of other states cannot hope to have a reasonable chance of survival’. In this sense, it is clear that neither the last criterion that affects the sustainability of the Eurozone is satisfied. However, even though that such a political union is impossible there are some small steps that can be done like the European Monetary Fund (EMF) and the Common Euro-bond Market (Gros and Mayer, 2010a; Gros and Mayer, 2010b; Gros and Micossi, 2008; De Grauwe and Moesen, 2009) . One more step could also be the creation of a ‘clear framework to deal with the consequences of a member country’s failure to abide by the fundamental rules’ (Gros 2010, p. 2).
4. What went wrong in Greece?
4.1 The Greek problem
The global financial and economic crisis that started in 2007 revealed the structural problems of Greece. According to the Centre for European Reform (2009) Greece has spent many opportunities within EMU for more than twenty years. In fact, it could be argued that under the aforementioned conditions Greece is very difficult to remain a member of the Eurozone. As it will be discussed below, there are several reasons that could reinforce this argumentation. These are mainly separated in the theoretical and practical foundations of EMU and in the Greek structural political and economic deficiencies.
4.2 A European Responsibility?
By paraphrasing Fink and Salvatore (1999, p.189) within EMU no ‘escape valves’ can be found in order to compensate negative economic shocks. In this sense, it is obvious from the aforementioned analysis that within EMU there exist different levels of wage adjustments and labour mobility, different levels of satisfaction for the OCA criteria and thus different levels of political and economic integration. In fact, Greece does not satisfy either the Mundell’s criterion for labour mobility, or Kenen’s criterion for production diversification or McKinnon’s criterion for openness. The Eurozone from its early beginning does not satisfy neither the labour mobility and nor the fiscal transfers criterion for OCA (Baldwin and Wyplosz, 2006). In fact, Greece is the last European country in pass-through and openness dimension (Campa and Goldberg, 2002), it has the lowest average of export and import ratio to GDP in the Eurozone (European Economy, 2005) and it is the second European country after Norway in trade dissimilarity index (Baldwin and Wyplosz, 2006) . Thus, even though the EU has declared that within EMU there is a free movement of capital, people, and commodities, there are severe capital and labour rigidities, significant differences in terms of economic transactions and structures that affect the Greek economic performance.
In this sense, Paul Krugman’s (1991) view for the increasing relation of economic integration, regional concentration and asymmetric shocks seems to be confirmed. Furthermore, Μαριόλης (2009) provides another critical explanation of the main economic cause of the European and Greek crisis. According to him the economic integration implies a major economic transformation from the law of comparative advantage (Ricardo, 2002) that exists between sovereign states to the law of the absolute advantage (Smith, 1991) . Consequently, this transformation has a major economic implication for countries like Greece that participate in monetary unions and stand unable to resist to the global and European economic trends. In this respect, it is observed a growing global financialization that entails a growing economic interdependence among the economic actors . Thus, there can be identified major differences and gaps (as there exist in the Eurozone) of economic growth that imply major inequalities between the nation states and their regions. Consequently, the satisfaction of Maastricht’s convergence criteria does not represent the real ability of the member states not only to participate within the monetary union but also to remain competitive in the international and domestic arena . If this is the case, some European economies like the case of Greece seem to have been trapped by the economic theory.
The Eurozone has already damaged Greece directly through the skewed nature within the Euro area and indirectly through the financial crisis of 2007 (Lapavitsas et al. 2010). As Lapavitsas et al. 2010, p. 1) state:
‘Monetary union has removed or limited the freedom to set monetary and fiscal policy, thus forcing the pressures of economic adjustment onto the labour market. Guided by EU policy, Eurozone countries have entered a ‘race to the bottom’ encouraging flexibility, wage restraint, and part-time work. Labour has lost out to capital across the Eurozone. The race has been won by Germany squeezing its workers hard in the aftermath of reunification. The Eurozone has become an area of entrenched current account surpluses for Germany, financed by current account deficits for peripheral countries’.
Under the aforementioned conditions it is clear that many deficiencies and flaws in European and national level were ignored not only by the Greek but also by the European political leaders. In fact, the Greek membership in the EMU was a political decision, a positive game that transformed to a tragedy . In this respect, Feldstein (1997b, p. 41) states ‘Political leaders in Europe seem to be prepared to ignore these adverse consequences because they see EMU as a way of furthering the political agenda of a federalist European political union’. The Greek crisis proves that that the politicians in both sides did not evaluate well the pros and cons of the Greek membership. However, the great German surpluses in current account and in trade demonstrate that some member states have asymmetric advantages within EMU (Figure 8).
Even though, the Greek bail out was the first time that the EU recognized that the Eurozone has a political side (Munchau, 2010), it is clear that the Greek bail out was also necessitated from national interests especially from Germany in order to maintain the trade (export) and employment advantages within EMU (Table 10 and Figure 9). Theoretically, the aforementioned observation it can be explained through Moravcsik’s liberal intergovernmentalism (Moravcsik, 1993) and more specifically through the revised embedded intergovernmentalism in which the concerns of the stronger nation states within the Eurozone are affected by their powerful socio-economic actors (Talani, 2005; Talani, 2007; Talani, 2008) . As Talani (2007, p. 299) argues ‘Intergovernmentalist would predict that the interest of the most powerful member states prevail over the one of smaller states’. As a result, the weak member states seem to be trapped not only from economic theory but also from strong national business preferences that can modify policy decisions that have agreed in European level .
Figure 8. Divergencies in current account balance 1970-2014Source: Darvas (2009).
Table 10. Current account positions, euro area countries
Source: European Commission (2010b).
Figure 9. Unemployment rates in Germany
Source: Economist (2010).
4.3 A blame for Greece?
4.3.1 Political Issues
Even though there are many political and economic flaws that are responsible for the bad economic performance within the Eurozone one could argue that the Euro area is not responsible for the bad economic conditions in the member states but rather the answer lies on the failure to make adequate structural adjustments (Alesina and Giavazzi, 2006). In fact, the Greek economic problem is not only an economic but also a political problem that can take many forms. First, it is a matter of political and institutional instability. There are several theories that explain why the public economic function is not the same between countries because of political and institutional factors that affect the government performance (Roubini and Sachs 1989; Grilli et al. 1991; Corsetti and Roubini 1993; Alesina and Perotti 1996). The Greek typical political institution seems to be very weak and the crisis of 2007 revealed its pathogenesis. There were no incentives, and no assurance against the individualistic behaviour can be found. Thus, as Mitsopoulos and Pelagidis (2009, p.406) state ‘the design of the Greek political system has led to rent seeking and the blockage of reforms’.
Furthermore, it is a matter of ‘mismanagement and deception by the Greek authorities’ (De Grauwe, 2010c p.1). In this sense, there is a historical failure of the Greek governments that governed the Greece the last three decades with a populist way. As Tsakalotos (1998) observed the wider Greek context and failures in political planning during the Pasok governance, necessitated the Greek economic and political flaws. Under these conditions, the modernization of the Greek economy failed under the pressures of political corruption. Table 10 shows the reforms in euro-area countries (number of marginal and structural reforms). It is clear not only that the reforms in Greece was the lowest in the Eurozone but also that no structural reforms can be identified.
Table 10. Reforms in euro-area countries.
Source: European Economy 2006.
Thus, one can argue that the institutional, political, and economic reforms are inexistent in Greece in the last ten years. It is clear from Figure 10 that Greece is the first country that needs structural reforms. From 2007 to 2009 its position remained unchanged. The aforementioned requirement is affirmed by the research, development and innovation performance (Figure 11). Again, Greece is the last country within the EMU. In this sense, Greece needs a new model of economic development, a cultural revolution in order to overcome and surpass the internal and external political and economic pressures .
Figure 10. The perceived need for structural reforms in 2007 and 2009
Source: European Commission (2009b).
Figure 11. Research and development and innovation performance
Source: European Commission (2007).
Besides, it is a problem within the nature of political procedures and rational (irrational) behaviours (Καζάκος, 2010). In this sense, the Greek crisis is the outcome of naïve political bargaining based on voting results. This is a myopic and individualistic form of political behaviour that has negatively influenced not only the political and economic performance in Greece but also its long run sustainability. Thus, the last thirty years in Greece has created a cliental political system, which not only affected its economic performance but it influenced from rational or irrational calculations . Under the aforementioned conditions the possibilities of political reforms were limited.
Furthermore, it can also be said that the Greek citizens lack a high level of trust between them and thus the government confronts increasing difficulties . In this sense, it is a matter of social capital as the low level of cooperation and trust increase the application cost of rational policies (Boix and Posner, 1998). In addition, one can also observe many players that are reluctant to quit from their interest (Σημίτης, 1989). In this way, many political and economic reforms failed the last decade in Greece not only because of the lack of trust in the Greek society, like the reform in labour markets in Greece in 2000, but also because of the consolidated informal privileges.
Additionally, the Greek authorities can be blamed for ineffective and divergent policies, and strategies that confused the economic and political actors. It can be argued that Greece confronted with much more difficulties in order to convergence in the EU because it begun from a very different thesis . As Καζάκος (2010, p.36) believes ‘Its nexus of formal and informal institutions, values and ideas was totally different of the European’. Thus, it could be argued that Greek ‘structural congruence’ or ‘institutional fit’ or ‘national adaptation’ in the EU was very difficult, contrary to other European countries like Germany (Katzenstein, 1997; Giuliani, 2003). As a result, neither EMU’s conditionality nor other informal practices like the creative accounting could deter the financial crisis in Greece (Blavoukos and Pagoulatos, 2008; Annett, 2006).
Under the aforementioned conditions it could also be argued that the Greek authorities failed to integrate the European laws within the Greek political system. There is a significant gap between the typical and real modernization in Greece (Καζάκος, 2010). Thus, the Greek authorities also failed to make productive use of the Open Method of Coordination (OMC) . As Mbaye (2001, p.259) argues there are ‘cross-national factors rather than idiosyncratic characteristics’ that influence the inability and reluctance of a state to comply and conform respectively. Thus, Καζάκος (2010) observes that the procedure of reforms and modernization has not acquired the institutional ground that was required in order to become an obligation for politics. There is a wide gap between the typical modernization and its realization .
The last issue is related with the spread of corruption in the Greek political system. According to the Transparency International in 1999, 2004, Greece was second from the end and the last country in the international corruption index among the EU countries. In 2008 was the 57th country in the corruption index. This means that even though the last ten years the Greek governments tried to improve the Greek position, all attempts failed. As Mitsopoulos and Pelagidis (2009) observe in Greece there exist powerful, kleptocratic interest groups that act as rent-seeking Vikings. Under this condition the corruption is related and connected with the phenomenon of institutional underdevelopment. Thus, the widespread phenomenon of corruption in Greece can be spill over in all political and economic institutions in a worrying degree.
4.3.2 Economic Issues
According to the vulnerability index in the euro area, Greece appears to be the most vulnerable country in the Eurozone (Gros and Mayer, 2010b). What are the economic causes for this observation? First, as Figure 12 demonstrates the Greek and Portugal household consumption in the last ten years are by far the biggest within EMU. As Lapavitsas et al. (2010, p17) states ‘High household consumption has been the mode of integration for both countries in the Eurozone’. Moreover, it is impressive that after 2003 saving rates in Greece and Portugal had negative signs (Figure 13). The aforementioned data clearly proves that the increasing consumption of households in Greece and Portugal were financed by the increasing debt (Lapavitsas et al. 2010). As a result, it can be argued that the Greek economic problem is related with an unsophisticated consumerism based on the neo-Greek cultural practices. Both the state and the citizens consumed more than they could produce.
Figure 12. Household consumptionSource: Lapavitsas et al. (2010).
Figure 13. SavingsSource: Lapavitsas et al. (2010).
The second issue is related with the Greek competitiveness. The global financial crisis of 2007 revealed that Greece long run structural problems. As it can be observed from the Figure 14 in 2005 Greece was by far the last country in export growth and competitiveness. It continues not to support the markets, and the entrepreneurship (Centre for European Reform, 2009). Thus, many reports like that of the World Economic Forum (WEF) had shown that Greece’s major flaw was that of competitiveness (WEF, 2009; WEF, 2006). It is true that from 2001 to 2008 the Greek competitiveness decreased 19.6% (Τράπεζα της Ελλάδος, 2010). This is very important fact given that competitiveness in Austria decreased only 5% and in Germany only 9.7%.
Figure 14.Export growth and competitiveness
Source: European Commission (2005).
The deficiencies and flaws of the system of economic governance in Greece is another important cause. The ability of the Greek government to plan, evaluate, and to monitor major economic policies is limited. Thus, there is a wider gap between the theoretical and practical exercise of governance in Greece. The Greek governments not only failed to absorb huge amounts of euro in order to modernize and reform the Greek economy but also they spent the European funds in short run planning activities (Σέκερη, 2009). From 2001 to 2008 the absorption capacity of the European funds never exceeded the 20% (Καζάκος, 2010). It is clear that the Greek governance system suffers from major flaws and deficiencies like for example the ability for reforms (Bertelsmann, 2009).
Another issue is the problem of deficits and debts in the Greek economy. This is a highly messy and complicated long run deficiency for the Greek Economy. On the one hand the Greek government possesses a significant number of public corporations that burden the budget deficits and debts (Ράπανος, 2009). On the other hand, several attempts to counterbalance the problem have failed . Thus in 2010 the Commission published a report that raise increasing warnings for the Greek government deficit and debt performance . From 2007 Greece has deteriorated its position both in budget balance and debt (Table 11). As Table 11 demonstrates there exists a wide possibility for an even worse Greek performance in 2030 .
Table 10. Government budget balance and debt ratios in the euro areaSource: ECB (2010e).
Table 11. Government debt scenarios for the euro area countries
Source: ECB (2010e).
The aforementioned analysis had major negative influence of the Greek global financial position. This is demonstrated both in the ten year government bond yield and on sovereign and bank CDS (Figure 15 and 16). These prices are very important because not only they reflect the cost of borrowing money directly but also the economic performance and stability in Greece. Within six months the Greek cost of borrowing increased nearly 170 points. Thus, it can also be argued that the Greek government failed to calm the global markets.
Figure 15. Ten year government bond yield of euro area countriesSource: ECB (2010e).
Figure 16. Sovereign and bank CDS
Source: ECB (2010c).
5. Conclusion
As a conclusion, this dissertation, in order to assess whether EMU is a successful or unsuccessful paradigm of economic integration, analysed the EMU’s framework not only as an economic but also as a political and evolutionary phenomenon. It is now obvious why the Eurozone is not regarded as successful paradigm of economic and political integration as it could be according to European Commission. First, not only there are huge gaps in economic performance but also the convergence between the member states in the last ten years is nominal. Second, for some member states the participation within EMU is disastrous for many causes. The main reasons for this on the one hand can be explained from the OCA theory. The EMU suffers from asymmetric and adverse economic shocks, inflexible labour markets, rigid wages, centralization of economic activity to specific areas, incomplete trade integration, and uncoordinated monetary and fiscal policies. On the other hand, the EMU suffers from major institutional weaknesses like the SGP’s and the ECB’s weak institutional framework. Simultaneously, as the European political union is not regarded as feasible as it could be and the European sense of solidarity is inexistent, the result is ruinous for the European project and for its member states. Consequently, EMU’s structural disadvantage, artificial construction, absence of effective coordination and vague vision are important flaws of the euro area (Cohen, 2008; Cohen, 2009). In this sense, the Greek crisis came to affirm that because of the strong national interests of large member state within EMU, all the aforementioned theoretical arguments can be transform to practical vulnerabilities that can trigger not only the instability to small member states like Greece but also to the Eurozone. As long as large member states like Germany and France are able to follow their atomistic policies which are based on their national interests, countries like Greece are confounded to remain the last beggars. Moreover, the last ten years because of the political dimension of European integration these countries have maintained their weak domestic political and economic environment. Thus, the compliance of European norms to their political framework failed not only theoretically but practically. The Greek case is an excellent paradigm of this failure. For example, the inefficient use of OMC in Greece is a perfect case of how cross national characteristics affect the states inability and reluctance to comply. Both because of political and economic, domestic and European reasons, it could be said that it is not so obvious whether Greece will be able to overcome from the crisis and in the long run it is also uncertain whether Greece is able to remain in the EMU. In this regard, a further expansion and widening of the Eurozone with new member states that are worse than Greece could necessitate a historical failure not only for the Economic Union but also for the European project. Thus, a series of new political economic comparative studies are needed in order to be analysed and examined whether and under which conditions the new member states could become the new members of the EMU. As this thesis demonstrated, the omitting of political and economic theory in the name of national economic interests could become a great mistake. As a result, the aforementioned question will be the most interesting question in the following decades in the fields of European political economy and global governance, especially when new financial and economic crises will emerge.
References
Alcidi, C., and Gros, D., 2010. The European Experience with Large Fiscal Adjustments. Centre for European Policy Studies, CEPS Commentary, 29 April. Alesina, A., and Giavazzi, F., 2006. The Future of Europe: Reform or Decline. MIT Press, Cambridge. Alesina, A., and Perotti, R., 1995. The Political Economy of Budget Deficits. IMF Staff Papers, No. 42, 1-32. Angelaki, M., 2007. Applying the Open Method of Cooperation Back Home: The Case of Greek Pension Policy. Social Cohesion and Development, 2(2), 129-138.Annett, A., 2006. Enforcement and the Stability and Growth Pact: How Fiscal Policy did or did not Change under Europe’s Fiscal Framework. IMF, Working Paper, 06/116. Artis, M., 2007. The ECB’s Monetary Policy. in Artis, M., and Nixson, F., 2007. The Economics of the European Union: Policy and Analysis. Oxford University Press, Oxford.Artis, M., J., and Allsopp, C., 2003. The Assessment: EMU Four Years On. Oxford Review of Economic Policy, 19, 1-29.Balassa, B., 1961. The Theory of Economic Integration. Richard Irwin, London.Baldwin, R., and Wyplosz, C., 2006. The Economics of European Integration. McGraw-Hill Education, Berkshire.Baldwin, R., Berglof, E., Giavazzi, F., and Widgren, J., 2001. Eastern Enlargement and the ECB Reform. Swedish Economic Policy Review, 89(1), 15-50.Bayoumi, T., and Eichengreen, B., 1992. Shocking Aspects of European Monetary Unification. NBER Working Paper No. 3949. Bayoumi, T., Eichengreen, B., and von Hagen, J., 1997. European Monetary Unification: Implications of Research for Policy, Implications of Policy for Research. Open Economies Review, 8, 71-91.Bertelsmann, S., 2009. Sustainable Governance Indicators. April.Bindseil, U., 2001. A Coalition-Form Analysis of the ‘One Country-One Vote’ Rule in the Governing Council of the European Central Bank. International Economic Journal, 15(1), 141-164. Bini Smaghi, L., and Casini, C., 2000. Monetary and Fiscal Policy Co-operation in EMU. Journal of Common Market Studies, 38(3), 375-391.Bladen-Hovel, R., 2007. The Creation of EMU. in Artis, M., and Nixson, F., 2007. The Economics of the European Union: Policy and Analysis. Oxford University Press, Oxford.Blavoukos, S., and Pagoulatos, G., 2008. Fiscal Adjustment in Southern Europe: The Limits of EMU Conditionality. Hellenic Observatory Papers on Greece and Southeast Europe, LSE, March, London. Boix, C., and Posner, D., 1998. Social Capital: Explaining its Origins and Effects on Government Performance. British Journal of Political Science, 4, 686-693. Bordo, M., and Jonung, L., 1999. The future of the EMU: What does the History of Monetary Unions tell us?. NBER Working Paper, No. 7365, National Bureau of Economic Research, Cambridge.Boucher, J., 1991. Europe 1992: A Closer Look. Federal Reserve Bank of Atlanta, Economic Review, July/August. Bun, M., and Klaassen, F., 2002. Has the Euro Increased Trade?. Tinbergen Institute Discussion Paper 108/2, Amsterdam. Buti, M., Roeger, W., and in’t Velt, J., 2001. Stabilizing Output and Inflation: Policy Constraints and Co-operation under a Stability Pact. Journal of Common Market Studies. 39(5), 801-828.Campa, J., and Goldberg, L., 2002. Exchange Rate Pass-through into Import Prices: A Macro or Micro Phenomenon? Federal Reserve Bank of New York. Capiello, L., Hartmann, P., Hordahl, P., Kadareja, A., and Manganelli, S., 2006. The Impact of the Euro on Financial Markets. ECB Working Paper No. 598, March. Caplan, B., 2007. The Myth of the Rational Voter: Why Democracies Choose Bad Policies. Princeton University Press, Princeton.Caporale, M., 1993. Is Europe an Optimum Currency Area? Symmetric Versus Asymmetric Shocks in the EC. National Institute Economic Review, 144, 95-103.Centre for European Reform., 2009. The Lisbon Scorecard IX. How to Emerge from the Wreckage. February, London. Chriszt, M., 1992. Maastricht Treaty Paves Way for EMU. Federal Reserve Bank of Atlanta, Economic Update, January/March. Cohen, B., 2008. The Euro in a Global Context: Challenges and Capacities. in Dyson, K., 2008. The Euro at 10: Europeanisation, Power, and Convergence. Oxford University Press, Oxford.Cohen, B., 2009. Dollar Dominance, Euro Aspirations: Recipe for Discord? Journal of Common Market Studies, 47(4), 741-766. Corsetti, G., and Roubini, N., 1993. The Design of Optimal Fiscal Rules for Europe after 1992. in Torres, F., and Giavazzi, F., (eds) Adjustment and Growth in the European Monetary System, Cambridge University Press, Cambridge. Crouch, C., 2002. The Euro and Labour Markets and Wage Policies. in Dyson, K., (eds) European States and the Euro. Oxford University Press, Oxford. Crowley, P., 2001. The Institutional Implications of EMU. Journal of Common Market Studies. 39(3), 385-404. Darvas, Z., 2009. Current EMU Divergence: Lessons for an Enlarged EMU. Conference on European Economic Integration: "The Euro's Contribution to Economic Stability in CESEE" Oesterreichische Nationalbank 16-17 November, Vienna. De Grauwe, P., 2002. Challenges for Monetary Policy in Euroland. Journal of Common Market Studies, 40(4), 693-718. De Grauwe, P., 2003. The Economics of Monetary Integration. Oxford University Press, Oxford.De Grauwe, P., 2006. What have we Learnt about Monetary Integration since the Maastricht Treaty?. Journal of Common Market Studies, 44(4), 711-730.De Grauwe, P., 2008. Review: On the Need to Renovate the Eurozone. International Finance, 1-8. De Grauwe, P., 2009a. Some Thoughts on Monetary and Political Union. in Talani, S., L., (eds) The Future of EMU. Palgrave MacMillan, New York. De Grauwe, P., 2009b. The Euro at Ten: Achievements and Challenges. Empirica, 36, 5-20.De Grauwe, P., 2010a. A Greek Endgame?. Centre for European Policy Studies, CEPS Commentary, 9 March. De Grauwe, P., 2010b. Animal Spirits and Monetary Policy. Economic Theory, June. De Grauwe, P., 2010c. Crisis in the Eurozone and How to Deal with it. Centre for European Policy Studies, CEPS Policy Brief, No. 204, February.De Grauwe, P., 2010d. Lessons for Europe from 1930s. Centre for European Policy Studies, CEPS Commentary, 21 January.De Grauwe, P., 2010e. The Fragility of the Eurozone’s Institutions. Open Economic Review, 21, 167-174.
Περισσότερα... »
Source: Galati and Wooldridge (2009). 
Source: Galati and Wooldridge (2009). 
Source: Alexandraki 2009. 
Source: Bank of International Settlements (2008). 
Source: Henning (2009).
Source: Galati and Wooldridge (2009)
Source: Galati and Wooldridge (2009)
Source: Galati and Wooldridge (2009)
Source: Galati and Wooldridge (2009)In this case, as it can be observed from the figure 4 above the magnitude of total reserves increased from 1978 to 2005 more than 7%. In this respect, the monetary authorities like the central banks not only use the total reserves for monetary targets more but also they have increased their importance as a monetary and intervention tool. It is clear that from the table 6 that from 1999 to 2008 the euro share of official foreign exchange reserves increased from 17,9% to 25,5%. The same evolution can be observed also from the figure 5 which shows from 1995-2008 the development of the dollar and the euro as official reserve currency. However, according to the ECB the euro’s share of global reserves is quite misleading because in constant exchange rates its share decreased (ECB, 2008). Indeed, it can be argued that the euro’s trajectory after its fast start has remained stable (Cohen, 2009). 
Source: Cohen (2009)
Source: Mayer (2009). 
