1Chapter 10 Optimum Currency Areas and the Euro 10-2INTRO: European monetary integration • Chapter 10: OCAs and the European experience !a chronicle of European monetary integration (order !)• optimum currency area (OCA) theory • "Euroland: promised land or monetary Atlantis?"
210-3Optimum currency areas and the European experience (p. 356)•one of the key economic topics of the 1990s:•debate over benefits and costs of common currency •11 EU members adopted common currency on Jan 1, 1999 + Greece on Jan 1, 2001 + Slovenia on Jan 1, 2007 + … •this Chapter: •provides historical and institutional background needed • why and how? • has been an on-going process •introduces concept of ‘optimum currency area’+ GG-LL 10-4A wedding … Mojmir Hampl, vice governor of the Czech National Bank: “Nobody knows how the eurozone will look in the future. It’s hard to set the date of the wedding if you don’t know what the bride might look like,”Source: “East European countries push back entry dates”, Financial Times, June 13, 2011
310-5No longer in love? “Some of the EU’s poorest member states are close to meeting the economic conditions to join the euro, but the latest convergence report from the European Central Bank suggests their politicians lack the appetite to do so. Seven countries are under review for membership of the single currency area — a condition of joining the EU, though not for the UK which has an opt-out clause. The ECB said on Tuesday in its annual convergence review that the countries now comply with most of the economic criteria, but allseven fall short of the legal standards needed for membership”. Source: “Seven states fall short of criteria to adopt euro”, Financial Times, June 8, 2016 10-6Optimum currency areas and the European experience •one of the key economic topics of the 1990s:•debate over benefits and costs of common currency •11 EU members adopted common currency on Jan 1, 1999 + Greece on Jan 1, 2001 + Slovenia on Jan 1, 2007 + … •this Chapter: •provides historical and institutional background needed • why and how? • has been an on-going process •introduces concept of ‘optimum currency area’+ GG-LL
610-11+ Lithuania 10-12Source: ECB website
710-1310-14European Monetary Integration: a chronicle •under Bretton Woods: fixed intra-European ERs natural by-product all currencies fixed against USD => cross rates fixed too •after Bretton Woods: EU countries let their currencies float freely against the dollar (= concerted float), but have tried progressively to reduce mutual fluctuations•as early as 1971 (!),the Werner reportcalled for the eventual goal of fixed ERs in Europe, in three phases (+ federated system of CBs)
810-15European Monetary Integration: a chronicle (2) (no longer in textbook!)•first attempt at post-BW fixed ER-system: "snake-in-the-tunnel" (1972)•bands of ± 4.5 percent around central rate, •evolved into...
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