On the crisis of the EMU: Failed construction, failed implementation or failed crisis management?

Abstract

The Economic and Monetary Union (EMU) has been seen – also by its proponents – as much more than a merely monetary arrangement, let alone a technique devised to secure low-cost funding for profligate governments. Actions taken through ignorance, political instrumentalization, and bad economics enhanced by public discourse together gave rise to the impression that Europe lags behind the USA primarily due to the switch to EMU and the related financial orthodoxy. The double-dip crisis in Europe and the recurring difficulties of implementing decisions on the ground have called attention to some of the structural or constructional weaknesses of the financial architecture of the EMU. Being an EMU-in saves the respective country from the speculation against its national currency and the ensuing risks of volatility, of sudden stops and capital flow reversals, as well as of imported inflation. Being an EMU-in has also a number of drawbacks, although these tended to be over-emphasized in the recent literature.