By Paul De Grauwe; Abstract: The ninth edition of Economics of Monetary Union provides a concise analysis of the theories and policies relating to. Monetary Union. Paul De Grauwe. John Paulson Chair in European Political Economy. London School of Economics. OXFORD. UNIVERSITY PRESS. ECONOMIC AND MONETARY. UNION IN EUROPE. Paul De Grauwe. London School of Economics. Yuemei Ji. University of Leuven.
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Buy Economics of Monetary Union 9 by Paul De Grauwe (ISBN: ) from Amazon's Book Store. Everyday low prices and free delivery on eligible. The twelfth edition of Economics of Monetary Union provides a concise analysis of the theories and policies relating to monetary union. The author addresses. Request PDF on ResearchGate | The Economics of Monetary Union | The seventh Paul De Grauwe at The London School of Economics and Political Science.
The Greek drama illustrates something important about the governance of the Eurozone. It leads to a dilemma. Instructor manual PowerPoint slides Date: How could this happen? Economists have been debating this issue, but no consensus has emerged. Let us discuss these.
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Volume 16 , Issue 6 November Pages Related Information. Email or Customer ID. Forgot password? Old Password. Put differently, Greece was forced to switch off the automatic budget stabilizers, intensifying the decline in GDP and the increase in unemployment.
Greece was pushed into a bad equilibrium. The Greek drama illustrates two points concerning the costs of a monetary union.
First the adjustment costs after a large asymmetric shock can be very high in a monetary union.
These adjustment costs are made more severe in a monetary union because the country cannot devalue the currency. When these adjustment costs take the intensity they have had in Greece the temptation to exit becomes strong. Second, the fact that the government cannot issue debt in its own currency makes it prone to being pushed into illiquidity and insolvency.
Such a dynamic makes the government help— less and forces it to look for help from creditors. The latter, however, impose their rule, which leads to a loss of sovereignty of the country. From the previous discussion it appears that there is an important interaction between economics and politics.
The adjustment mechanism in a monetary union can be extremely painful, leading millions of people into unemployment and poverty for prolonged periods. Such severe suffering can lead to political upheaval, leading politicians to power who prom— ise a better life outside the monetary union. This, in a way, leads to the ultimate fragility of the Eurozone: The Greek drama illustrates something important about the governance of the Eurozone.
This is a decision mode where one or more creditor nations dictate policy to other countries.
This has also happened in Portugal and Ireland. It is not clear that such a hegemonic decision mode is sustainable in the long run.
Should Greece exit the Eurozone? This is the question of the desirability of Grexit; it leads to two sub-questions: Will Greece be better off after Grexit? Will the rest of the Eurozone be better off? Will Gre: Eacl whether l to politic: First I union. Economists have been debating this issue, but no consensus has emerged.
There are impor- tant negative implications of a Grexit. The most important one is that a Grexit is likely to lead the Greek government to default on its debt, which in turn will lead to a banking crisis because the Greek banks are major holders of Greek government bonds. All this will inten- sify the severity of the economic d0wnturn. There are also positive effects of a Grexit.
The likely devaluation of the new currency can boost the economy and speed up the recovery. Ultimately, if Greece were to exit, this will most likely be based on a political dynamic that we described in the previous section. The answer is most likely negative. A temporary Grexit it is like a temporary divorce.
It leads to a dilemma. If Greece does well outside the Eurozone then it is unlikely to be willing to return to a club where it suffered so much. If, however, Greece does not do well e. So a temporary Grexit makes little sense. It only serves to reduce the guilt feelings of those countries that have pushed out a member state from the monetary union.
There are two views about this question. Let us discuss these. Each time important asymmetric shocks occur, investors would ask the question of whether the adjustment costs of the country concerned may not become too high, leading to political pressures for an exit.
In this connection, the idea of a redenomination risk is important. Prior to the exit such unmatched assets and liabilities vis-a-vis other Eurozone countries do not matter as assets and liabilities are expressed in the same currency, the euro. However, after an exit this is no longer the case because the assets and liabilities are suddenly expressed in a foreign currency.
The Eurozone without Greece will become less of an optimal currency area. We represent this view in Fig. It is similar to Fig. The second view is optimistic about the effect of Grexit on the remaining Eurozone. According to this View, the Eurozone without Greece will face less asymmetric shocks because an outlier country has been ejected.
This makes the remaining countries less asym- metric more symmetric and as a result increases the stability of the Eurozone. The effect of Grexit is to make the Eurozone more symmetric. As a result, the Eurozone without Greece is pushed upwards. This upward push may even put this new Eurozone safely into the OCA zone. The Eurozone will become more sustainable. To conclude: Will there be a Grexit? At the time of writing, Greece was still in the Euro— zone.
The reader will forgive the author of this book for not making a prediction. Symmetry Eurozone - Greece Eurozone flexibility Figure 5. In l been force 'I We also "i so as to m: View Full Document.
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