THE EURO

CONTENTS

Preface

PART I. EUROPE IN CRISIS

    1. THE EURO CRISIS

        THE CENTRAL THESES
            A NOTE ON THE HISTORY OF THE EURO, AND THE SCOPE OF THIS BOOK
            FLAWED AT BIRTH
            DIGGING DEEPER: WHY THE FLAWED STRUCTURE AND POLICIES?
            MISCONCEPTIONS ABOUT THE PROCESS OF ECONOMIC AND POLITICAL CHANGE
            THE WAY FORWARD\hg
        WORSE THAN A LOST DECADE?
            DISMAL ECONOMIC PERFORMANCE
            EVEN GERMANY IS A FAILURE
            HOW THE EURO CREATED THE EURO CRISIS
        CREATING A DIVERGENT EUROZONE
        BLAME THE VICTIM
        HERBERT HOOVER FAILS AGAIN
            AUSTERITY
            STRUCTURAL REFORMS
            THE PUZZLE OF COUNTERPRODUCTIVE POLICIES
        SOLIDARITY AND COMMON ECONOMIC UNDERSTANDINGS
            THE UNDERLYING PROBLEM: MARKET FUNDAMENTALISM — IDEOLOGY RULES
            HINTS AT A DEMOCRATIC DEFICIT
            THEORIES OF REFORM
        AN ALTERNATIVE WORLD IS POSSIBLE
            URGENCY
            
    2. THE EURO: THE HOPE AND THE REALITY

        THE CASE FOR THE EURO
            A UNITED EUROPE WOULD BE MORE INFLUENTIAL ON THE WORLD STAGE
                The counterargument
                If there is European consensus, Europe’s influence will be heard — even without a monetary union
                The role of rules
            THE EURO AND PEACE
            THE EURO AND EUROPEAN IDENTIFICATION
        ECONOMIC INTEGRATION
            TRADITIONAL ARGUMENTS FOR THE BENEFITS OF ECONOMIC INTEGRATION
            BENEFITS AND COSTS OF INTEGRATION WITH COLLECTIVE ACTION
            THE MULTIPLE ASPECTS OF ECONOMIC INTEGRATION
        DOES SHARING A COMMON CURRENCY IMPROVE WELL-BEING AND PROMOTE FURTHER INTEGRATION?
            HOW THE EURO MAY DIRECTLY IMPEDE ECONOMIC DIVERSIFICATION
            INTELLECTUAL INCOHERENCE WITHIN THE EUROPEAN PROJECT
            THE EURO: SOME ADVANTAGES EVEN IN WELL-FUNCTIONING MARKETS, BUT A MAJOR RISK
        ECONOMIC INTEGRATION OUTPACING POLITICAL INTEGRATION
            CONCEPTIONS ABOUT HOW THE ECONOMY WORKS
            VALUES: SOCIAL JUSTICE AND THE IMPORTANCE OF COLLECTIVE ACTION
        A DEMOCRATIC DEFICIT

    3. EUROPE’S DISMAL PERFORMANCE

        THE EUROZONE AND THE CRISIS
            STAGNANT GDP
                Comparison with non-eurozone European countries
                Comparison with the United States
            STANDARDS OF LIVING
                Government spending and austerity
            PRODUCTIVITY
            UNEMPLOYMENT
                Youth unemployment
                Hours worked
            INEQUALITY
        THE EURO, THE EURO CRISIS, AND LONGER-TERM PERFORMANCE
        THE EURO AND INDIVIDUAL COUNTRY PERFORMANCE
        FUTURE PROSPECTS
        GERMANY
        CONCLUDING REMARKS
            COUNTERFACTUALS
            CORRELATION AND CAUSATION
            THE REAL COSTS OF THE EURO
    
PART II. FLAWED FROM THE START

    4. WHEN CAN A SINGLE CURRENCY EVER WORK?

        THE UNITED STATES AS A CURRENCY AREA
        WHY SHARING A COMMON CURRENCY AMONG COUNTRIES WITH MAJOR DIFFERENCES IS A PROBLEM AND HOW THE EUROZONE FAILED TO DO WHAT WAS NEEDED
            MAINTAINING FULL EMPLOYMENT
            THE EUROZONE “THEORY”
            THE ECB MANDATE EXACERBATES THE PROBLEMS: A BIAS TOWARD UNEMPLOYMENT
        INTERNAL DEVALUATIONS AND EXTERNAL IMBALANCES
            INTERNAL DEVALUATION HAS NOT WORKED
            WHY WE SHOULD NOT HAVE EXPECTED INTERNAL DEVALUATION TO WORK
            EXPLAINING THE FAILURE OF INTERNAL DEVALUATION
                Slow wage adjustments: blaming the victim
                Market rigidities
                Why internal devaluations often lead to large decreases in GDP 
                Explaining the disappointing performance of exports
                Imbalances within Europe: competitive devaluations
                A bias toward unemployment
                Zero lower bound
            THE TWIN DEFICITS
            WAS THERE AN ALTERNATIVE?
        WHY CURRENCY AREAS ARE PRONE TO CRISIS
            THE ROLE OF MARKETS — AND THE EURO — IN CREATING EXCHANGE-RATE MISALIGNMENTS
            BORROWING IN A FOREIGN CURRENCY
        WHY EVEN TRADE SURPLUSES MATTER
            SURPLUSES: VICE OR VIRTUE?
            EXTERNALITIES, AND THE EURO AND GLOBAL GOVERNANCE
        CONCLUDING COMMENTS
            THE RESPONSE
            A LOOK FORWARD

    5. THE EURO: A DIVERGENT SYSTEM

        DIVERGENCE IN CAPITAL AND FINANCIAL MARKETS AND THE SINGLE-MARKET PRINCIPLE
            THE SINGLE MARKET TOGETHER WITH THE EUROZONE AND MARKET IRRATIONALITY CREATED THE EURO CRISIS
        CAPITAL FLIGHT
            EXPLAINING THE FLOW AGAINST GRAVITY
            DIVERGENCE IN THE ABSENCE OF A CRISIS
                Fixing the problem
                A banking union
            REGULATORY RACES TO THE BOTTOM
                Difficulties in regulation
                Fixing the problem
        DIVERGENCE AND FREE LABOR MOBILITY
                Fixing the Problem
        OTHER SOURCES OF DIVERGENCE
            DIVERGENCES IN PUBLIC INVESTMENT
                Fixing the Problem
            DIVERGENCES IN TECHNOLOGY
                Fixing the problem
            DIVERGENCE IN WEALTH
        THE CRISIS POLICIES EXACERBATE DIVERGENCE
            HOW ONGOING "REFORMS" MAY LEAD TO MORE INSTABILITY AND DIVERGENCE
                How free mobility encourages "reforms" that lead to greater instability and inequality
        CONCLUDING COMMENTS

    6. MONETARY POLICY AND THE EUROPEAN CENTRAL BANK

        THE INFLATION MANDATE
        CONSEQUENCES OF THE FIXATION ON INFLATION
        CONSTRAINING MONETARY AUTHORITIES
        THE POLITICAL NATURE OF MONETARY POLICY
        INCREASING INEQUALITY
        DISTRIBUTION, POLITICS, AND THE CRISIS
        GOVERNANCE
            CAPTURE
            CONSEQUENCES OF CAPTURE
            CENTRAL BANKS AS POLITICAL INSTITUTIONS
            THE NEOLIBERAL ARGUMENT FOR CENTRAL BANK INDEPENDENCE
            BEYOND INDEPENDENCE
        CONCLUDING COMMENTS: ECONOMIC MODELS, INTERESTS, AND IDEOLOGY
            THERE ARE CHOICES
        AFTERWORD: DEVELOPMENTS IN MONETARY THEORY AND POLICY OVER THE PAST THIRD OF A CENTURY
            MONETARISM
            INFLATION TARGETING
            QUANTITATIVE EASING
            THE NATURAL RATE HYPOTHESIS
    
PART III. MISCONCEIVED POLICIES

    7. CRISES POLICIES: HOW TROIKA POLICIES COMPOUNDED THE FLAWED EUROZONE STRUCTURE, ENSURING DEPRESSION

            THE IMPERATIVE TO DO SOMETHING
        THE MACROECONOMIC FRAMEWORK OF THE CRISIS PROGRAMS
        AUSTERITY: THE MYTH OF THE SWABIAN HOUSEWIFE
            THINKING ABOUT AUSTERITY
            PRIMARY SURPLUSES
        THE DESIGN OF THE AUSTERITY PROGRAMS
            HIDDEN AGENDAS
        INCREASING REVENUES
            DESIGNING TAX INCREASES
            PRIVATIZATIONS
        CUTTING SPENDING
            PENSIONS
        SAVING THE BANKS
            A "CONFIDENCE" GAME?
        BAILOUTS AND DEBT RESTRUCTURINGS: WHO IS REALLY BEING HELPED?
        A FRESH START: AN ALTERNATIVE TO DEPRESSION-GENERATING AUSTERITY
            COULD GREECE PROCEED IN A RESTRUCTURING ON ITS OWN?
        CONCLUDING COMMENTS
        ACADEMICS FOR AUSTERITY: AN ASIDE
            EXPLAINING THE MAGNITUDE OF THE DOWNTURN
                Inequality and distribution

    8. STRUCTURAL REFORMS THAT FURTHER COMPOUNDED FAILURE

        BLAMING THE SUPPLY SIDE
        THE TROIKA'S STRUCTURAL REFORMS: FROM THE TRIVIAL TO THE COUNTERPRODUCTIVE
            FOCUSING ON THE WRONG THING
            TECHNOLOGY
            THE TRIVIAL
                Fresh milk
                The size of a loaf of bread
                Pharmacies
            WEAKENING LABOR
            COUNTERPRODUCTIVE REFORMS
        REFORMS THAT WOULD HAVE MATTERED
            INDUSTRIAL POLICIES
            PROMOTING EQUALITY
            REBALANCING POWER
            REFORMING THE FINANCIAL SECTOR
            CLIMATE CHANGE
        CONCLUDING COMMENTS
            THE NEED FOR GROWTH
            THE COUNTERFACTUAL

PART IV. A WAY FORWARD?

    9. CREATING A EUROZONE THAT WORKS

        REFORMING THE STRUCTURE OF THE EUROZONE
        STRUCTURAL REFORM #1: A BANKING UNION
        STRUCTURAL REFORM #2: MUTUALIZATION OF DEBT
        STRUCTURAL REFORM #3: A COMMON FRAMEWORK FOR STABILITY
            (1) A COMMON FISCAL FRAMEWORK — BEYOND A SUICIDE PACT
                Better budget rules
            (2) A SOLIDARITY FUND FOR STABILIZATION
                Expanding existing European institutions
                Mutual insurance
            (3) AUTOMATIC STABILIZERS
            (4) FLEXIBILITY IN CREDIT CREATION
            (5) REGULATING THE ECONOMY TO PREVENT EXCESSES
            (6) STABILIZING FISCAL POLICIES
        STRUCTURAL REFORM #4: A TRUE CONVERGENCE POLICY — TOWARD STRUCTURAL REALIGNMENT
            (1) DISCOURAGING SURPLUSES
            (2) EXPANSIONARY WAGE AND FISCAL POLICIES IN SURPLUS COUNTRIES
            (3) REVERSING THE OTHER DIVERGENCE POLICIES
        STRUCTURAL REFORM #5: A EUROZONE STRUCTURE THAT PROMOTES FULL EMPLOYMENT AND GROWTH FOR ALL OF EUROPE — MACROECONOMICS
        STRUCTURAL REFORM #6: STRUCTURAL REFORMS OF THE EUROZONE TO ENSURE FULL EMPLOYMENT AND GROWTH FOR ALL OF EUROPE
            (1) MAKING THE FINANCIAL SYSTEM SERVE SOCIETY
            (2) REFORMING CORPORATE GOVERNANCE
            (3) A SUPER–CHAPTER 11 FOR BANKRUPTCY
            (4) PROMOTING ENVIRONMENTAL INVESTMENTS
        STRUCTURAL REFORM #7: A COMMITMENT TO SHARED PROSPERITY
        REFORMS IN "CRISIS POLICY"            
            THE IMPORTANCE OF DISCRETION AND FLEXIBILITY
        CRISIS POLICY REFORM #1: FROM AUSTERITY TO GROWTH
            (1) RECOGNIZING THE LIMITS OF MONETARY POLICY: THE CONCERTED USE OF FISCAL POLICY
            (2) RECOGNIZING THE PRINCIPLE OF THE BALANCED-BUDGET MULTIPLIER
        CRISIS POLICY REFORM #2: TOWARD DEBT RESTRUCTURING
        CONCLUDING COMMENTS

    10. CAN THERE BE AN AMICABLE DIVORCE?

        HOW TO LEAVE THE EURO AND PROSPER
        CREATING A 21ST-CENTURY FINANCIAL TRANSACTIONS SYSTEM
        CREDIT: CREATING A BANKING SYSTEM THAT SERVES SOCIETY
            TARGETED REGULATION OF CREDIT CREATION
            THE IMPACT OF "DIVORCE" ON THE FLOW OF BANK CREDIT
            RESTORING DOMESTIC CONTROL OVER CREDIT CREATION
            CREDIT AUCTIONS
            WHENCE BANK CAPITAL?
        MANAGING THE CURRENT ACCOUNT DEFICIT IN AN AMICABLE DIVORCE
        MANAGING THE CURRENT ACCOUNT DEFICIT THROUGH TRADE CHITS
        MANAGING THE FISCAL DEFICIT
        MANAGING DEBT RESTRUCTURING
        THE ADVANTAGES OF A GERMAN DEPARTURE
        CONCLUDING COMMENTS

    11. TOWARD A FLEXIBLE EURO

        THE BASIC IDEA
        STABILIZING RELATIVE EXCHANGE RATES
            LIMITING SURPLUSES
            MORE EFFICIENT SHARING OF THE BURDEN OF ADJUSTMENT
            PRODUCTIVITY CONVERGENCE
        THE ECONOMIC RATIONALE
        THE NEED FOR EUROZONE COOPERATION

    12. THE WAY FORWARD

        WHITHER THE EUROZONE?
        WHAT IS GOING ON? THE INTERPLAY BETWEEN POLITICS AND ECONOMICS
            IDEOLOGY — ONCE AGAIN
            BLAME THE VICTIM
            TINAFAILURE TO LEARN
            A LACK OF FAITH IN DEMOCRACY
            IDEOLOGY AND POWER
        WHY THE EUROPEAN PROJECT IS SO IMPORTANT
        POLITICAL AND ECONOMIC INTEGRATION: LESSONS FROM THE EUROZONE
        SAVING THE EUROPEAN PROJECT
    
Notes
Acknowledgments
Index