Why things have gone so wrong in the eurozone

November 14, 2013

The euro project is strictly political in nature, while its economic rationale is still clumsy. Today, both rationales are in direct conflict. Europeans have a "one-size-fits-all" type of Euro-wide monetary policy, which obliges the European Central Bank to look more attentively at the economic needs of the core countries than those of the peripheral partners. A new book The Economics of the Monetary Union and the Eurozone Crisis by the Spanish economics professor Manuel Sanchis i Marco provides the analytical framework to understand the economic rationale underlying both the optimum currency areas approach and the rules-based EU fiscal framework.

"The theory of optimal currency areas remains the essential framework to understand the design failures of the eurozone. In order to understand these dramatic economic developments that grip the eurozone, Sanchis i Marco's book is the right one at the right time. He does a superb job in explaining this theory and in making it relevant for our understanding of the problems faced by the eurozone," said Prof. Paul De Grauwe of the London School of Economics. "The last two chapters of the book turn towards an analysis of the crisis of the euro and how to get out of this crisis. By suggesting a path out of the crisis, Professor Sanchis i Marco leaves us with some hope for the future for Spain and other eurozone countries."

This new book points to important policy recommendations. With no adjustments in nominal exchange rates, external disequilibria in the eurozone can only be corrected through changes in relative prices and costs. Therefore, several alternative scenarios emerge.

The heads of state and the heads of government betray the construction of Europe by emptying it of all content when they favor the diktat of the bureaucratic elites against the political legitimacy of the EU as a supranational democratic community shored up by a legal framework. The strategic and political course that Germany has set weakens its commitment to the construction of Europe, undermines the credibility of German political support of the current political initiatives to complete the eurozone, and strews Europe with little shadowless bushes, creating a hot house for national resentments. The euro-skeptical Chancellor Merkel and her government would do well to learn from Chancellor Kohl and, like him, reconcile allegiance to Germany with loyalty to Europe.

Manuel Sanchis i Marco is Associate Professor (Tenured) of Applied Economics in the Department of Applied Economics II at the University of Valencia. He holds a Ph.D. in Economics (1984, Cum Laude, Extraordinary Prize for the Best Doctoral Dissertation) by the same university. His ideas, recommendations and conclusions in this book result from many years of economic analysis and research at the European Commission working as an official in the Directorate General for Economic and Financial Affairs and the Directorate General of Employment and Social Affairs.
Manuel Sanchis i Marco
The Economics of the Monetary Union and the Eurozone Crisis
2014, XIII, p. 109, 14 illus., 12 in color
Softcover, €49,95, ISBN 978-3-319-00019-0. Also available as an eBook


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