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.
The author gratefully acknowledges comments from the participants at the 9th Workshop of the Research Network ‘Alternative Macroeconomic Policies’ (theme: ‘Macroeconomics and Macroeconomic Policies — Alternatives to the Orthodoxy’) in Berlin, 28–9 October 2005, where a preliminary draft of this essay was presented.
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© 2007 Jörg Bibow
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Bibow, J. (2007). How the Maastricht Regime Fosters Divergence as Well as Instability. In: Arestis, P., Hein, E., Le Heron, E. (eds) Aspects of Modern Monetary and Macroeconomic Policies. Palgrave Macmillan, London. https://doi.org/10.1057/9780230627345_11
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DOI: https://doi.org/10.1057/9780230627345_11
Publisher Name: Palgrave Macmillan, London
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