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The Future of the Euro$
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Matthias Matthijs and Mark Blyth

Print publication date: 2015

Print ISBN-13: 9780190233235

Published to Oxford Scholarship Online: March 2015

DOI: 10.1093/acprof:oso/9780190233235.001.0001

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The Forgotten Problem of Embeddedness

The Forgotten Problem of Embeddedness

History Lessons for the Euro

(p.21) 2 The Forgotten Problem of Embeddedness
The Future of the Euro

Kathleen R. McNamara

Oxford University Press

The fact that Europe is not an “optimum currency area” is the wrong diagnosis for Europe’s woes. Instead, the chapter argues that the Eurozone’s biggest challenges lie not in its economic “suboptimality” but in the fact that the euro is fundamentally “disembedded” from the specific social and political institutions needed to provide a solid foundation for a monetary union. Markets need political authority to create stability, and a lack of governance will make the euro more vulnerable than its shortcomings as an optimum currency area. The history lessons of previous monetary unions—understood on a continuum of “least embedded” to “most embedded”—tell us that, if the euro is to succeed, the Eurozone should be transformed into an “embedded currency area” (ECA) with a true lender of last resort, a fiscal and banking union, and an accountable and democratically legitimate political union.

Keywords:   optimum currency area, embedded currency area, euro, monetary union, political authority

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