Is Euroland an optimal currency area?
05 Feb 2015 Leave a comment
in currency unions, Euro crisis, global financial crisis (GFC), macroeconomics, monetary economics Tags: Euroland, optimal currency area
Greece should default and abandon the euro – Jeff Miron
27 Jan 2015 Leave a comment
in budget deficits, currency unions, development economics, economic growth, economic history, Euro crisis, fiscal policy, global financial crisis (GFC), growth disasters, law and economics, macroeconomics, poverty and inequality Tags: currency unions, Euroland, Greece, optimal currency area, sovereign default
Fraser Institute Economic Freedom in the World Index 2014 – top 10 countries
13 Oct 2014 Leave a comment
Did the Left profit politically from Euroland crisis
07 Sep 2014 Leave a comment
in currency unions, Euro crisis, global financial crisis (GFC) Tags: EU politics
HT: whaleoil
Milton Friedman on the future of the Euro
23 Jun 2014 Leave a comment
in currency unions, Euro crisis, macroeconomics, Milton Friedman Tags: Euro, optimal currency areas
I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it.
I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy.
You know, the various countries in the euro are not a natural currency trading group. They are not a currency area. There is very little mobility of people among the countries.
They have extensive controls and regulations and rules, and so they need some kind of an adjustment mechanism to adjust to asynchronous shocks—and the floating exchange rate gave them one. They have no mechanism now.
If we look back at recent history, they’ve tried in the past to have rigid exchange rates, and each time it has broken down. 1992, 1993, you had the crises. Before that, Europe had the snake, and then it broke down into something else.
So the verdict isn’t in on the euro. It’s only a year old. Give it time to develop its troubles (2000)
AND
The drive for the Euro has been motivated by politics not economics.
The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe.
I believe that adoption of the Euro would have the opposite effect.
It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues.
Europe has extensive experience with currency union break-ups
15 Jun 2014 Leave a comment
in currency unions, macroeconomics Tags: euro crisis, Euroland
- The Latin Monetary Union (LMU) joined Belgium, Italy, and Switzerland together with France in 1867. The arrangement managed to hold together until the generalized breakdown of global monetary relations during World War I.
- The Scandinavian Monetary Union (SMU) formed in 1873 by Sweden and Denmark and two years later by Norway. This was disrupted by the suspension of convertibility and floating of individual currencies at the start of World War I. the agreement was finally abandoned in 1931.
- The Austro-German Monetary Union was dissolved in less than a decade following Austria’s defeat in the 1866 Austro-Prussian War.
- The only truly successful monetary union in Europe came in 1922 with the birth of the Belgium-Luxembourg Economic Union (BLEU), which remained in force for more than seven decades until 1999.
- Europe in the twentieth century has also seen the disintegration of several monetary unions, usually as a by-product of political dissolutions.
- A celebrated instance is after the Austro-Hungarian Empire was dismembered by the Treaty of Versailles. Almost immediately, in an abrupt and quite chaotic manner, new five currencies were introduced.
- There also have been British and French currency unions with and between colonies.
Since World War II, economies have exited currency unions at an average rate of one per year.
Andrew Rose found
…that countries leaving currency unions tend to be larger, richer, and more democratic; they also tend to experience somewhat higher inflation.
Most strikingly, there is remarkably little macroeconomic volatility around the time of currency union dissolutions, [emphasis added] and only a poor linkage between monetary and political independence.
Indeed, aggregate macroeconomic features of the economy do a poor job in predicting currency union exits.
Rather than saying Euroland cannot fall, the discussion should be dissolutions of currency unions are common, especially when Greece is a member. What happened? How was it done?
HT: Monetary Unions.
Utopia, you are standing in it! 
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