Thinking About the Euro at Night

Abstract:     
From a distant look, two items can be applied to the discussion of the Euro these days: The theory of optimal currency areas and what economists usually do when countries fail. The theory of optimal currency areas serves best as a supplier of arguments, why a certain currency union failed and the Euro is an empirical test on the endogeneity versus the specialisation paradigm. The most powerful instrument the International Monetary Fund usually employs to “save” failing economies, an depreciation, is not available in Euroland. Thus a split of the currencies of failing economies is proposed: With all stocks still denominated in Euro, a transaction currency is introduced for flows. This may help to regain competiveness without leaving the Euro and destroying wealth. With this new rule expectations in financial markets might be fixed.

Number of Pages in PDF File: 6

Keywords: Euro-crisis, ECB, Greece, Germany, Currency Union, Troika, Stocks, Flows

JEL Classification: E58, F32, F33, F42, G15

working papers series