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The Eurocrisis: Muddling Through, or On the Way to a More Perfect Euro Union?

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  • Joshua Aizenman

Abstract

This paper looks at the short history of the Eurozone through the lens of an evolutionary approach to forming new institutions. The euro has operated as a currency without a state, under the dominance of Germany. This has so far allowed the euro to achieve a number of design objectives, and this may continue, as long as Germany does not shirk its growing responsibility for the euro's future. Germany's resilience and dominant size within the EU may explain its "muddling-through" approach towards the Eurozone crisis. We review several manifestations of this muddling through process. Greater mobility of labor and lower mobility of under-regulated capital may be the costly "second best" adjustment until the arrival of more mature institutions in the Eurozone.

Suggested Citation

  • Joshua Aizenman, 2014. "The Eurocrisis: Muddling Through, or On the Way to a More Perfect Euro Union?," NBER Working Papers 20242, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20242
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    References listed on IDEAS

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    1. Aizenman, Joshua & Pinto, Brian & Radziwill, Artur, 2004. "Sources for Financing Domestic Capital – is Foreign Saving a Viable Option for Developing Countries?," Santa Cruz Department of Economics, Working Paper Series qt31n8m3bt, Department of Economics, UC Santa Cruz.
    2. Joshua Aizenman, 2004. "Financial Opening: Evidence and Policy Options," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 473-494, National Bureau of Economic Research, Inc.
    3. Eswar S. Prasad & Raghuram G. Rajan & Arvind Subramanian, 2007. "Foreign Capital and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 153-230.
    4. Julia Jauer & Thomas Liebig & John P. Martin & Patrick Puhani, 2014. "Migration as an Adjustment Mechanism in the Crisis? A Comparison of Europe and the United States," OECD Social, Employment and Migration Working Papers 155, OECD Publishing.
    5. Aizenman, Joshua & Pinto, Brian & Radziwill, Artur, 2007. "Sources for financing domestic capital - Is foreign saving a viable option for developing countries?," Journal of International Money and Finance, Elsevier, vol. 26(5), pages 682-702, September.
    6. Joshua Aizenman, 2012. "The Euro and the global crises: finding the balance between short term stabilization and forward looking reforms," NBER Working Papers 18138, National Bureau of Economic Research, Inc.
    7. Raghuram G. Rajan, 2005. "Has financial development made the world riskier?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 313-369.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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