The Political Economy of the Euro

Posted: 15 May 2013

See all articles by Paul De Grauwe

Paul De Grauwe

CESifo (Center for Economic Studies and Ifo Institute for Economic Research); London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR)

Date Written: May 2013

Abstract

The Eurozone's present state of crisis originated from decisions made at its creation. The decision to create a monetary union was motivated by political objectives and completely disregarded the economics of a monetary union. Political leaders did not understand the necessary economic conditions for a successful monetary union and did not recognize the inherent fragility of the monetary union they established. They showed the same disturbing lack of understanding of the economics of the sovereign debt crisis in 2010. They misdiagnosed the problem, and their response included disastrous decisions that intensified the crisis. This review explains these errors and concludes with recommendations for saving the euro.

Suggested Citation

De Grauwe, Paul and De Grauwe, Paul, The Political Economy of the Euro (May 2013). Annual Review of Political Science, Vol. 16, pp. 153-170, 2013, Available at SSRN: https://ssrn.com/abstract=2265161 or http://dx.doi.org/10.1146/annurev-polisci-060911-085923

Paul De Grauwe (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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