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THE CRISIS IN THE EURO AREA: AN ANALYTIC OVERVIEW

 

 

 

Heather D. Gibson

Bank of Greece

 

Theodore Palivos

Athens University of Economics and Business

 

 George S. Tavlas

Bank of Greece

 

 

Abstract

This paper provides an introduction to the special issue “The Crisis in the Euro Area”. We take stock of what the euro area crisis has taught us about monetary integration. At the inception of the euro area in 1999, the main parameters of the theory of monetary integration seemed to have been pretty well-settled. Although it was common knowledge that the euro area fell short of fully satisfying all the conditions needed for an optimally-functioning monetary union, most politicians and many economists thought that the euro area satisfied enough conditions so that it would not encounter major difficulties. This paper discusses several developments that came as surprises about the conditions needed for monetary unification as the euro crisis unfolded. These developments include the need of an adequate adjustment mechanism, the links between banking and sovereign crises, and the sharp costs of adjustment to adverse asymmetric shocks.

 

 

Keywords: Financial crises, euro-area, monetary integration, optimum currency areas, adjustment mechanism

 

JEL Classifications: E51, E52, F33, F41, G01

 

 

 

 

 

Correspondence:

George Tavlas

Bank of Greece

21 E Venizelos Ave.

Athens, 10250, Greece

Tel. no. +30 210 320 2370

Fax. no. +30 210 320 2432

email address: gtavlas@bankofgreece.gr


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