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How the Maastricht Regime Fosters Divergence as Well as Instability

In: Aspects of Modern Monetary and Macroeconomic Policies

Author

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  • Jörg Bibow

Abstract

This chapter investigates the phenomenon of persistent macroeconomic divergence that has occurred across the Euro area in the fragile macroeconomic environment of recent years. Optimal currency area theory would point toward asymmetric shocks and structural factors as the foremost candidate causes. The alternative hypothesis pursued here focuses on the working of the Maastricht regime itself, highlighting that the regime features powerful built-in de-stabilizers that foster divergence as well as instability. Supposed adjustment mechanisms have turned out to actually undermine the operation of the currency union by making it ever less ‘optimal’, that is, less subjectable to a ‘one-size-fits-all’ monetary policy and common nominal exchange rate in view of the resulting business cycle de-synchronization and related build-up of financial imbalances.

Suggested Citation

  • Jörg Bibow, 2007. "How the Maastricht Regime Fosters Divergence as Well as Instability," Palgrave Macmillan Books, in: Philip Arestis & Eckhard Hein & Edwin Heron (ed.), Aspects of Modern Monetary and Macroeconomic Policies, chapter 11, pages 197-222, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-62734-5_11
    DOI: 10.1057/9780230627345_11
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    Cited by:

    1. Engelbert Stockhammer & Özlem Onaran, 2012. "Rethinking wage policy in the face of the Euro crisis. Implications of the wage-led demand regime," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(2), pages 191-203, September.
    2. Engelbert Stockhammer & Dimitris P. Sotiropoulos, 2014. "Rebalancing the Euro Area: The Costs of Internal Devaluation," Review of Political Economy, Taylor & Francis Journals, vol. 26(2), pages 210-233, April.
    3. Engelbert Stockhammer & Syed Mohib Ali, 2018. "Varieties of Capitalism and post-Keynesian economics on Euro crisis," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 44(3), pages 349-370.
    4. Acocella, Nicola, 2020. "How to Reform the EU and the EMU," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(3), pages 325-350.

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