The Eurocrisis: Muddling Through, or On the Way to a More Perfect Euro Union?
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.
Insightful comments by Jerry Cohen, Barry Eichegreen, Andrew Rose, Paul Wachtel and the 20th Dubrovnik Economic Conference participants are gratefully acknowledged. Joshua Aizenman is grateful for the support provided by the Dockson Chair in Economics and International Relations, USC. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Joshua Aizenman, 2015. "The Eurocrisis: Muddling through, or on the Way to a More Perfect Euro Union?," Comparative Economic Studies, vol 57(2), pages 205-221.