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

Joshua Aizenman

NBER Working Paper No. 20242
Issued in June 2014
NBER Program(s):   IFM

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.

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Document Object Identifier (DOI): 10.3386/w20242

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