2018/10 | LEM Working Paper Series | ||||||||||||||||
Eurozone: original flaws, present problems and challenges for the future |
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Marcello Minenna |
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Abstract | |||||||||||||||||
The European monetary union was born as a result of a negotiation
process among the founding countries profoundly influenced by the
economic and political dynamics of the ‘90s: the experience of the
EMS, the German unification process, the desire of France to prevent
the reaffirmation of German supremacy in the European continent, the
need for countries like Italy to reduce the cost of servicing public
debt. Despite the strong differences between the countries involved,
the conviction prevailed that the German fiscal recipe could be
successfully exported to neighboring States and that the
centralization of monetary policy at the European Central Bank while
keeping fiscal sovereignty at a national level could be achieved
without trauma. The experience of the last decade shows, however, that
the a monetary union with a derisory federal budget and whose central
bank has exclusively an inflation target and cannot act as a lender of
last resort in the Member States is endogenously predisposed to the
formation of large economic-financial imbalances between the various
countries and is particularly vulnerable to exogenous shocks. The
reversal of the diverging dynamics still in progress – captured by the
unprecedented size of the Target 2 balances of countries such as
Germany and Italy – requires a profound rethinking of the European
project in accordance with the principles of subsidiarity and of
sustainable and shared development enshrined in the Treaties.
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