Will the Euro Bring Economic Crisis to Europe?

Jerome Levy Economics Institute Working Paper No. 322

11 Pages Posted: 10 Apr 2001

See all articles by Philip Arestis

Philip Arestis

University of Cambridge - Department of Land Economy; Universidad del País Vasco (UPV/EHU)

Malcolm C. Sawyer

Levy Economics Institute

Date Written: March 2001

Abstract

It has been argued that the eurozone will face considerable economic difficulties. These will take a number of forms, two of which could qualify as "crises." First, the euro was launched at a time when unemployment levels were high (10 percent of the workforce) and disparities in the experience of unemployment and standards of living were particularly severe. These high levels of unemployment are likely to continue in the foreseeable future, and the policy arrangements that surround the operation of the euro, notably the objectives of the European Central Bank and the workings of the Stability and Growth Pact, will have a deflationary bias. These levels of and disparities in unemployment could be termed a crisis. Second, the introduction of the euro and the associated institutional setting could well serve to exacerbate tendencies toward financial crisis, including the volatility and subsequent collapse of asset prices and runs on the banking system. Some additional forces of instability may arise from the current trade imbalances and the relationship between the dollar and the euro as two major global currencies. Further, the operating arrangements of the European System of Central Banks can be seen as inadequate to cope with such financial crises.

Suggested Citation

Arestis, Philip and Sawyer, Malcolm C., Will the Euro Bring Economic Crisis to Europe? (March 2001). Jerome Levy Economics Institute Working Paper No. 322. Available at SSRN: https://ssrn.com/abstract=264121 or http://dx.doi.org/10.2139/ssrn.264121

Philip Arestis (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Universidad del País Vasco (UPV/EHU)

Barrio Sarriena s/n
Leioa, Bizkaia 48940
Spain

Malcolm C. Sawyer

Levy Economics Institute ( email )

Blithewood
Annandale-on-Hudson, NY 12504-5000
United States
845-758-7700 (Phone)
845-758-1149 (Fax)

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