IDEAS home Printed from https://ideas.repec.org/p/iza/izapps/pp120.html
   My bibliography  Save this paper

A Sustainable Euro Area with Exit Options

Author

Listed:
  • Ritzen, Jo

    (affiliation not available)

  • Haas, Jasmina

    (Maastricht University)

Abstract

All explorations of the future of the Euro show serious risks for its survival in the present form. The road map of the Five EU Presidents presented in 2015 is far from sufficient to reduce the risks of the Euro zone falling apart by Brexit type developments or new economic shocks. The EU Presidents rely too much on high international economic growth smoothing the convergence in labor productivity between EU member states, while the more likely low growth scenario shows a serious risk of the Euro?area falling apart in a chaotic way, through further divergence in labor productivity, through new Banking crises or through the popular vote in response to fiscal and labor market reform. The Presidents argue for strengthening the Banking union with an independent watchdog, with a single resolution mechanism for Bank defaults and for a European credit deposit insurance system. The support for these proposals is overwhelming. They also argue for more transfer of sovereignty on financial policy and for debt mutualisation (sharing of the risks of country debt among all EU countries). This is unlikely to happen, while at the same time the urgency for dealing with the drag imposed by the high debt levels of many EU countries on economic growth is high. We propose that the EU negotiates a New Deal between the highly indebted Euro countries and the other Euro countries. In this deal the trust is built that the richer countries agree on debt mutualization against the assurance of an automatic exit from the Euro area at non?compliance with the agreed (and simplified) rules.

Suggested Citation

  • Ritzen, Jo & Haas, Jasmina, 2016. "A Sustainable Euro Area with Exit Options," IZA Policy Papers 120, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izapps:pp120
    as

    Download full text from publisher

    File URL: https://docs.iza.org/pp120.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jamal Ibrahim Haidar, 2015. "Can the Euro Survive?," The World Economy, Wiley Blackwell, vol. 38(3), pages 553-567, March.
    2. Jo Ritzen & Klaus Zimmermann, 2014. "A vibrant European labor market with full employment," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-24, December.
    3. Frankel, Jeffrey, 2015. "The euro crisis: Where to from here?," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 428-444.
    4. Giancarlo Corsetti & Michael P. Devereux & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2011. "EEAG Report on the European Economy 2011," EEAG Report on the European Economy, CESifo, vol. 0, pages 1-176, February.
    5. Markus K. Brunnermeier & Harold James & Jean-Pierre Landau, 2016. "The Euro and the Battle of Ideas," Economics Books, Princeton University Press, edition 1, number 10828.
    6. Jean Pisani-Ferry, 2012. "The Euro crisis and the new impossible trinity," Bruegel Policy Contributions 674, Bruegel.
    7. Giuseppe Bertola & John Driffill & Harold James & Hans-Werner Sinn & Jan-Egbert Sturm & Ákos Valentinyi, 2014. "The EEAG Report on the European Economy 2014: The road towards cohesion," EEAG Report on the European Economy, CESifo, vol. 0, pages 01-120, February.
    8. Sinn, Hans-Werner, 2017. "The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs," OUP Catalogue, Oxford University Press, number 9780198791447.
    9. Arne Heise, 2015. "Euro or not euro – that is not the question! Economic well-being and the fate of the Economic and Monetary Union," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(4), pages 443–456-4, October 2.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jordan, Matthias & Millinger, Markus & Thrän, Daniela, 2020. "Robust bioenergy technologies for the German heat transition: A novel approach combining optimization modeling with Sobol’ sensitivity analysis," Applied Energy, Elsevier, vol. 262(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Steininger, Lea & Hesse, Casimir, 2024. "Buying into new ideas: The ECB’s evolving justification of unlimited liquidity," Department of Economics Working Paper Series 357, WU Vienna University of Economics and Business.
    2. Malte Dold & Tim Krieger, 2023. "The ideological use and abuse of Freiburg’s ordoliberalism," Public Choice, Springer, vol. 195(3), pages 341-361, June.
    3. Joshua Aizenman & Gunnar Gunnarsson, 2015. "Fiscal Challenges in Multilayered Unions: An Overview and Case Study," Social Sciences, MDPI, vol. 4(2), pages 1-20, May.
    4. Lea Steininger & Casimir Hesse, 2024. "Buying into new ideas: The ECB’s evolving justification of unlimited liquidity," Department of Economics Working Papers wuwp357, Vienna University of Economics and Business, Department of Economics.
    5. Scharpf, Fritz W., 2016. "Forced structural convergence in the eurozone: Or a differentiated European monetary community," MPIfG Discussion Paper 16/15, Max Planck Institute for the Study of Societies.
    6. Martin Hellwig, 2019. "Target-Falle oder Empörungsfalle? – Zur deutschen Diskussion um die Europäische Währungsunion," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2019_05, Max Planck Institute for Research on Collective Goods.
    7. Laica, Christoph & Lauber, Arne & Sahm, Marco, 2017. "Sequential round-robin tournaments with multiple prizes," BERG Working Paper Series 129, Bamberg University, Bamberg Economic Research Group.
    8. Feld, Lars P. & Köhler, Ekkehard A. & Nientiedt, Daniel, 2017. "The "dark ages" of German macroeconomics and other alleged shortfalls in German economic thought," Freiburg Discussion Papers on Constitutional Economics 17/03, Walter Eucken Institut e.V..
    9. Pompeo Della Posta & Enrico Marelli & Marcello Signorelli, 2020. "A market‐financed and growth‐enhancing investment plan for the euro area," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 604-632, July.
    10. Nenovsky, Nikolay & Faudot, Adrien, 2023. "Фридрих Хайек За Международният Паричен Ред. Идеи И Проекти От 30-Те И 40 Години [Friedrich Hayek on the international monetary order. Ideas and projects from the 30s and 40s]," MPRA Paper 116531, University Library of Munich, Germany.
    11. Thomas Lehner & Fabio Wasserfallen, 2019. "Political conflict in the reform of the Eurozone," European Union Politics, , vol. 20(1), pages 45-64, March.
    12. Tomas Klinger & Petr Teply, 2016. "The Nexus Between Systemic Risk and Sovereign Crises," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 50-69, February.
    13. Bindseil, Ulrich & Corsi, Marco & Sahel, Benjamin & Visser, Ad, 2017. "The Eurosystem collateral framework explained," Occasional Paper Series 189, European Central Bank.
    14. Aleberto Alesina & Guido Tabellini & Francesco Trebbi, 2017. "Is Europe an Optimal Political Area?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 169-234.
    15. Athanasios Kolliopoulos, 2020. "The Determinants of Bank Bailouts in Greece: testing the extreme limits of the ÒVarieties of Financial CapitalismÓ framework," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 148, Hellenic Observatory, LSE.
    16. Boysen-Hogrefe, Jens & Fiedler, Salomon & Groll, Dominik & Kooths, Stefan & Stolzenburg, Ulrich, 2017. "Konjunktur im Euroraum im Herbst 2017 - Wirtschaft im Euroraum kommt in Fahrt [Euro Area Autumn 2017 - The economy in the euro area is picking up speed]," Kieler Konjunkturberichte 34, Kiel Institute for the World Economy (IfW Kiel).
    17. Federico Maria Ferrara & Jörg S Haas & Andrew Peterson & Thomas Sattler, 2022. "Exports vs. Investment: How Public Discourse Shapes Support for External Imbalances," Post-Print hal-02569351, HAL.
    18. De Grauwe, Paul & Foresti, Pasquale, 2016. "Fiscal rules, financial stability and optimal currency areas," Economics Letters, Elsevier, vol. 145(C), pages 278-281.
    19. Anselm Küsters, 2022. "Applying Lessons from the Past? Exploring Historical Analogies in ECB Speeches through Text Mining, 1997–2019," International Journal of Central Banking, International Journal of Central Banking, vol. 18(1), pages 277-329, March.
    20. Boyer, Pierre & Blesse, Sebastian & Bordignon, Massimo & Carapella, Piergiorgio & Heinemann, Friedrich & Janeba, Eckhard & Raj, Anasuya, 2020. "The future of the European project: survey results from members of national parliaments in France, Italy and Germany," CEPR Discussion Papers 15021, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    banking; financing; productivity; fiscal; stability; debt crisis; EMU; euro;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izapps:pp120. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.