Abstract
This chapter investigates the phenomenon of persistent macroeconomic divergence that has occurred across the Euro area in the fragile macroeconomic environment of recent years. Optimal currency area theory would point toward asymmetric shocks and structural factors as the foremost candidate causes. The alternative hypothesis pursued here focuses on the working of the Maastricht regime itself, highlighting that the regime features powerful built-in de-stabilizers that foster divergence as well as instability. Supposed adjustment mechanisms have turned out to actually undermine the operation of the currency union by making it ever less ‘optimal’, that is, less subjectable to a ‘one-size-fits-all’ monetary policy and common nominal exchange rate in view of the resulting business cycle de-synchronization and related build-up of financial imbalances.
The author gratefully acknowledges comments from the participants at the 9th Workshop of the Research Network ‘Alternative Macroeconomic Policies’ (theme: ‘Macroeconomics and Macroeconomic Policies — Alternatives to the Orthodoxy’) in Berlin, 28–9 October 2005, where a preliminary draft of this essay was presented.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Allsopp, C. and Vines, D. (1998) ‘The Assessment: Macroeconomic Policy after EMU’, Oxford Review of Economic Policy, 14 (3): 1–23.
Arestis, P. and Sawyer, M. (2001) The Euro: Evolution and Prospects (Aldershot: Edward Elgar).
Bibow, J. (2001) ‘Making EMU Work: Some Lessons from the 1990s’, International Review of Applied Economics, 15 (3): 233–59.
Bibow, J. (2003) Is Europe Doomed to Stagnation? Working Paper No. 379, Levy Economics Institute.
Bibow, J. (2005) ‘Germany in Crisis: The Unification Challenge, Macroeconomic Policy Shocks and Traditions, and EMU’, International Review of Applied Economics, 19 (1): 29–50.
Bibow, J. (2006) Inflation Persistence and Tax-push Inflation in Germany and the Euro Area: A Symptom of Macroeconomic Mismanagement?, IMK Studies 1/2006.
De Grauwe, P. and Mongelli, F.P. (2005) Endogeneities of Optimum Currency Areas: What Brings Countries Sharing a Single Currency Closer Together?, ECB Working Paper Series No. 468, April.
Dyson, K. and Featherstone, K. (1999) The Road to Maastricht: Negotiating EMU (New York: Oxford University Press).
ECB (2004) Inflation Differentials in the Euro Area: Potential Causes and Policy Implications, Working Paper No. 388, September. http://www.ecb.int/pub/pdf/scpwps/ecbwp388.pdf.
ECB (2005) ‘Monetary Policy and Inflation Differentials in a Heterogeneous Currency Area’, Monthly Bulletin, May: 61–77.
Financial Times Deutschland (2006) Kritik an Madrids Steuergeschenk, written by K. Finkenzeller and S. Dullien, 25 January, p. 16.
Friedman, M. (1953) ‘The Case for Flexible Exchange Rates’, in M. Friedman (ed.), Essays in Positive Economics (Chicago: Chicago University Press).
Fritsche, U. et al. (1999) ‘Is There a Need for a Co-ordinated European Wage and Labour Market Policy?’, in G. Huemer, M. Mesch, M. and F. Traxler (eds), The Role of Employer Associations and Labour Unions in the EMU (Aldershot: Ashgate).
FT.com 2006. ‘Eurozone Fails to Match Germany’s Industrial Revival’ (R. Atkins), February 1.
Goodhart, C.A.E. (1998) ‘The Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas’, European Journal of Political Economy, 14: 407–32.
Hein, E. and Truger, A. (2005) ‘European Monetary Union: Nominal Convergence, Real Divergence and Slow Growth?’, Structural Change and Economic Dynamics, 16: 7–33.
Keynes, J.M. (1923) A Tract on Monetary Reform (London: Macmillan).
Keynes, J.M. (1936) The General Theory of Employment, Interest and Money (London: Macmillan).
Kregel, J. (1999) ‘Can EMU Combine Price Stability with Employment and Income Growth?’, Eastern Economic Journal, 25 (1): 35–47.
Loose, B. and Ludwig, U. (2005) ‘Deutschland nach dem Boomjahr 2000: Gespaltene Konjunktur — Gespaltenes Investitionsverhalten’, Wirtschaft im Wandel, 12: 367, Wirtschaftsforschungsinstitut Halle.
Mongelli, F. (2002) ‘New’ Views on the Optimum Currency Area Theory: What is EMU Telling Us?, ECB Working Paper Series, No. 138, April.
Mundell, R.A. (1961) ‘A Theory of Optimum Currency Areas’, American Economic Review, 51: 657–75.
OECD (2004) Euro Area Survey (Paris: OECD).
Tietmeyer, H. (1991) ‘The Role of an Independent Central Bank in Europe’, in P. Downes and R. Vaez-Zadeh (eds), The Evolving Role of Central Banks (Washington, DC: IMF).
WSJE (2002) ‘Duisenberg Defends Holding Rates Steady’, 9 October (T. Sims and B.A. Grow).
Editor information
Editors and Affiliations
Copyright information
© 2007 Jörg Bibow
About this chapter
Cite this chapter
Bibow, J. (2007). How the Maastricht Regime Fosters Divergence as Well as Instability. In: Arestis, P., Hein, E., Le Heron, E. (eds) Aspects of Modern Monetary and Macroeconomic Policies. Palgrave Macmillan, London. https://doi.org/10.1057/9780230627345_11
Download citation
DOI: https://doi.org/10.1057/9780230627345_11
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-28354-5
Online ISBN: 978-0-230-62734-5
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)