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Alternative Interpretations of a Stateless Currency crisis

Author

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  • Sergio Cesaratto

    (University of Siena)

Abstract
A number of economists holding Keynesian or pragmatic monetarist views warned that political union was a necessary premise for a viable monetary union. Inspired by Goodhart, we name this the Cartalist view. The European currency union was, however, strongly influenced by New Classical Macroeconomics, which gave new strength to older traditions, like ordoliberalism, that back separation of monetary and fiscal policy, legitimizing a Stateless currency. Again like Goodhart, we call this the Metallist view. This distinction is particularly relevant for assessing two alternative perspectives of the nature of the Euro area crisis. On one hand, there are those who argue that the crisis is akin to a traditional balance of payment crisis of the kind typically occurring in fixed exchange rate regimes. On the other, there are those who attribute the crisis to obstacles to more resolute intervention by the European Central Bank (ECB). Accordingly, belated intervention by the ECB led to worsening of the fiscal crisis of peripheral Euro area states, subsequently exacerbated by austerity policies. In this view, a classical balance of payment crisis can be excluded as a cause of the crisis, because Target 2, a payment mechanism analogous to Keynes’s International Clearing Union, protects the Euro area. In this paper, I argue that although a balance of payments crisis cannot exist in a viable sovereign monetary union, it is still conceivable in a flawed, stateless monetary union like the Euro zone, possibly obscured by Target 2. In this regard, I also show that, while timely and resolute ECB intervention would have been appropriate, in the absence of federal institutions (particularly a federal budget controlled by a European democratic parliament), once this intervention finally took place, austerity measures necessarily accompanied it to check moral hazard possibilities of peripheral member countries. I argue that the German neo-mercantilist orientation and the influence of the predominant mainstream credo that monetary policy should be detached from politics and fiscal policy are obstacles to a viable federal union. I also warn about the risk that the Parliament of such a union would be divided according to national rather than ideological/class interests. Virtue out of necessity, Hayek pointed out long-ago that a currency union among different nation-States could only survive with a minimalist federal State.

Suggested Citation

  • Sergio Cesaratto, 2015. "Alternative Interpretations of a Stateless Currency crisis," a/ Working Papers Series 1508, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
    • Handle: RePEc:ais:wpaper:1508
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    References listed on IDEAS

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    1. Walter Paternesi Meloni, 2017. "Austerity & Competitiveness in the Eurozone: a misleading linkage," Departmental Working Papers of Economics - University 'Roma Tre' 0223, Department of Economics - University Roma Tre.
    2. Balaga Mohana Rao & Puja Padhi, 2020. "Common Determinants of the Likelihood of Currency Crises in BRICS," Global Business Review, International Management Institute, vol. 21(3), pages 698-712, June.
    3. Srdelic, Leonarda & Davila-Fernandez, Marwil J., 2022. "Demographic transition and economic growth in 6-EU member states," MPRA Paper 112188, University Library of Munich, Germany.
    4. Massimo Pivetti, 2019. "The euro system and the overall european project: Failure or fully-fledged success?," Revista de Economía Crítica, Asociación de Economía Crítica, vol. 27, pages 112-121.
    5. Di Domenico, Lorenzo, 2021. "Stability and determinants of the public debt-to-GDP ratio: an Input Output – Stock Flow Consistent approach," MPRA Paper 109970, University Library of Munich, Germany.
    6. Stefano di Bucchianico, 2019. "A bit of Keynesian debt-to-GDP arithmetic for deficit-capped countries," Bulletin of Political Economy, Bulletin of Political Economy, vol. 13(1), pages 55-83, June.
    7. Salvatore D'Acunto & Domenico Suppa, 2021. "L'output gap tra scienza e superstizione. (The output gap between science and superstition)," Moneta e Credito, Economia civile, vol. 74(294), pages 113-135.
    8. Sergio Cesaratto, 2022. "Le frontiere della politica monetaria: aspetti didattici, teorici, di politica economica. Un review article (The frontiers of monetary policy: didactic, theoretical, economic policy aspects. A review ," Moneta e Credito, Economia civile, vol. 75(299), pages 353-373.
    9. Ricardo Cabral & Francisco Louçã, 2019. "The euro at twenty: Follies of youth?," Revista de Economía Crítica, Asociación de Economía Crítica, vol. 27, pages 59-69.
    10. Di Domenico, Lorenzo, 2021. "Stability and determinants of the public debt-to-GDP ratio: an Input Output – Stock Flow Consistent approach," MPRA Paper 110460, University Library of Munich, Germany.
    11. Karsten Kohler, 2024. "Capital Flows and the Eurozone's North-South Divide," Politics & Society, , vol. 52(2), pages 304-330, June.
    12. Sergio Cesaratto, 2016. "The modern revival of the Classical surplus approach: implications for the analysis of growth and crises," Department of Economics University of Siena 735, Department of Economics, University of Siena.
    13. Stefano Figuera & Guglielmo Forges Davanzati & Andrea Pacella, 2022. "Considerations on the Legacy of Ordoliberalism in European Monetary Policy," HISTORY OF ECONOMIC THOUGHT AND POLICY, FrancoAngeli Editore, vol. 2022(2), pages 95-122.
    14. Ramon Boixadera Bosch & Ferran Portella Carbó, 2019. "Beyond the euro: Limits to economic policy in the EU," Revista de Economía Crítica, Asociación de Economía Crítica, vol. 27, pages 47-58.
    15. Rosaria Rita Canale & G. Liotti, 2022. "Target2 imbalances and poverty in the eurozone," Journal of Evolutionary Economics, Springer, vol. 32(5), pages 1395-1417, November.

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    More about this item

    Keywords

    Europe; Crisis; Target2; ECB; State.;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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