Eastern Enlargement of the European Monetary Union: An Optimal Currency Area theory view

2003 ◽  
pp. 243-277 ◽  
Author(s):  
Bernhard Mahlberg ◽  
Ralf Kronberger
Keyword(s):  
Monetary Union ◽  
European Monetary Union ◽  
Eastern Enlargement ◽  
European Monetary ◽  
Optimal Currency Area ◽  
Currency Area ◽  
Theory View

scholarly journals Endogeneity and Specialization in the European Monetary Union

2015 ◽  
Vol 46 (1) ◽  
pp. 7-40
Author(s):  
Henryk Bąk ◽  
Sebastian Maciejewski
Keyword(s):  
Business Cycle ◽  
Monetary Union ◽  
European Monetary Union ◽  
Global Financial Crisis ◽  
National Income ◽  
European Monetary ◽  
Business Cycle Synchronization ◽  
Member States ◽  
Optimal Currency Area ◽  
Currency Area

Abstract There has been a broad discussion about the viability of the European Monetary Union (EMU) in its present and prospective confines. Generally, the EMU, consisting of 19 countries, is not considered an optimal currency area due to low labor market flexibility, autonomous fiscal policies, and structural differences among its members. Considerations about the endogeneity effect of currency unions lead to the question whether the EMU will become more viable over time. According to the endogenity hypothesis formulated by Frankel and Rose [1996, 2000], a common currency area may gradually become an optimal currency area at some future point (ex post unification), despite not having been an optimal currency area (OCA) prior to (ex ante) currency unification. Currency unification should bring about increased intra-industry trade and greater business cycle synchronization among member states. The most recent literature and analyses presented in this paper suggest that the endogenity effect in the EMU has been frail since its onset. While real convergence between EMU member states has not advanced, divergence in i.a. economic structures, national income and productivity levels is observed. The most important economic mechanisms reinforcing convergence and divergence among monetary union members are presented in this paper. Using recent data and related research results, we show a significant divergence in economic structures, business cycle synchronization and productivity levels among Eurozone members in the last decade. The Krugman sectorial dissimilarity index is applied to measure changes in industrial similarity among member countries and the Hodrick-Prescott filter to estimate business cycle synchronization in the EMU. These divergence tendencies have been strengthened by the global financial crisis of 2008 and persist, calling for reforms and new policies within the EMU.

Is the Euro Working? The Euro and European Labour Markets

2004 ◽  
Vol 24 (2) ◽  
pp. 147-168 ◽  
Author(s):  
STEPHEN J. SILVIA
Keyword(s):  
Monetary Policy ◽  
Monetary Union ◽  
Euro Area ◽  
European Monetary Union ◽  
Structural Adjustment ◽  
Labour Markets ◽  
Fiscal Consolidation ◽  
European Monetary ◽  
Currency Area ◽  
Made In

Now that time has passed since the introduction of the euro as a commercial currency, it is possible to assess many arguments made in the abstract during the 1990s about European monetary union. This article shows that the euro zone still falls short as an optimal currency area in most respects. In particular, it undertakes an empirical analysis of the labour market and finds no progress toward flexibility or integration. These results challenge assertions of ‘endogenous currency area’ proponents that the euro area would become optimal ‘after the fact’, and that labour markets would serve as the principal avenue of adjustment. Instead, a ‘rigidity trap’ has developed in the euro area, consisting of relatively tight monetary policy, forced fiscal consolidation, and a risk of deflation in some economies. These conditions have compounded the difficulties of structural adjustment in European labour markets.

scholarly journals EMU – “Optimum” or “Viable” Currency Area?

2012 ◽  
Author(s):  
Andreea Bucur
Keyword(s):  
European Union ◽  
Economic Integration ◽  
Monetary Union ◽  
European Monetary Union ◽  
Research Effort ◽  
Optimum Currency Area ◽  
European Monetary ◽  
European Union Enlargement ◽  
Currency Area ◽  
Optimum Currency

Although the increasing heterogeneity as an effect of European Union enlargement, referring especially to the last two waves, is perceived as a single internal market and also euro single currency risk, European Monetary Union represents an important step towards deepening economic integration. Controversy on the Optimum Currency Area issue has created difficulties in empirical research effort to find appropriate responses to the EMU dilemma: is Euro zone an „optimum” or rather “viable” currency area?

scholarly journals OCA INDEX AS INDICATOR OF THE CZECH REPUBLIC'S PREPAREDNESS TO JOIN THE EUROPEAN MONETARY UNION

2021 ◽  
Vol 11 (2) ◽  
pp. 91-94
Author(s):  
SARKA HYBLEROVA
Keyword(s):  
Czech Republic ◽  
Monetary Union ◽  
Euro Area ◽  
European Monetary Union ◽  
Common Currency ◽  
European Monetary ◽  
The Czech Republic ◽  
Currency Area ◽  
Using Data ◽  
Key Indicators

The optimum currency area (OCA) theory evaluates the currency area as optimum at a time when the participating countries are not at risk of macroeconomic instability due to the existence of a common currency. The OCA index is a tool used to comprehensively assess the costs and benefits of a candidate for joining a monetary union. It is constructed as a bilateral index assessing the appropriateness of introducing the single currency in two countries. The article presents the OCA index quantified for the Czech Republic in relation to Germany, which is considered to be the core of the European Monetary Union. Since the OCA index needs to be interpreted in a temporal or spatial comparison, the calculation of the OCA index was also performed for other countries of the Visegrad Group (V4) and furthermore for Austria and Portugal, using data from the period of 2007–2019. The results of the OCA index show a high degree of variability in the Czech Republic in the observed period. While in the first half of the period under review, the Czech Republic achieved the best results within the assessed economies and the Czech Republic's level of preparedness for the common currency with Germany was higher than in the case of Austria, it fell sharply after 2012. The reason can be seen, among other things, in the higher growth rate of the Czech economy than in the euro area. Although the OCA index is an indicator assessing the preparedness of an economy to join a monetary union, it cannot be the only indicator. Other important criteria include, for example, labour mobility, price and wage flexibility, fiscal integration and more. Although the Czech Republic is approaching the euro area average in all key indicators, the gap from it remains significant for most indicators and thus continues to be a factor against the adoption of the euro in the coming years.

Die Europäische Schuldenkrise: Ursachen und Lösungsstrategien

2012 ◽  
Vol 63 (1) ◽  
Author(s):  
Friedrich Heinemann
Keyword(s):  
Crisis Management ◽  
Monetary Union ◽  
European Monetary Union ◽  
Debt Crisis ◽  
Economic Literature ◽  
European Monetary ◽  
Solution Strategies ◽  
Currency Area ◽  
Long Run ◽  
Destructive Potential

SummaryThis contribution highlights the complex causes of the European debt crisis and discusses available options for a solution. Relevant causes included are debt incentives which are effective permanently, the lacking optimality of the European currency area and deficient institutional debt brakes. Furthermore, the acute dimension of the crisis as a self-fulfilling crisis of confidence with a highly destructive potential is stressed. All solution strategies face the challenge that a self-fulfilling confidence crisis cannot be contained through an improvement of long-run fundamentals alone. Based on this analysis the crisis management is assessed. One insight is that the often criticized cautious and muddling-through approach towards a permanent solution is adequate. In contrast to that, allegedly courageous solutions like the introduction of eurobonds or the quick exclusion of crisis countries from the euro zone are unconvincing. Links to the economic literature of the early 1990s prove that the risk of a debt crisis has clearly been identified and analyzed as a particular risk of the European Monetary Union well before its start.

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