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After the CrisisReform, Recovery, and Growth in Europe$
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Francesco Caselli, Mário Centeno, and José Tavares

Print publication date: 2016

Print ISBN-13: 9780198754688

Published to Oxford Scholarship Online: August 2016

DOI: 10.1093/acprof:oso/9780198754688.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 08 December 2021

Dealing with EMU Heterogeneity

Dealing with EMU Heterogeneity

National Versus European Institutional Reforms

(p.73) 3 Dealing with EMU Heterogeneity
After the Crisis

André Sapir

Oxford University Press

In light of the recent financial and sovereign debt crisis, there is now a large consensus that something was fundamentally wrong with Europe’s Economic and Monetary Union (EMU). The original design clearly lacked institutional mechanisms to deal with financial and sovereign debt crises. It also under-estimated the fundamental message of the optimum currency area (OCA) theory that countries in a monetary union can be subject to asymmetric shocks and that occurrence of such shocks was likely to be high in EMU, at least during its early years, because of the heterogeneity of its members. This chapter proposes the creation of national and EMU institutional mechanisms to reduce the occurrence of asymmetric shocks in the future, and to make adjustment to such shocks smoother than it is currently.

Keywords:   Optimum currency area (OCA), OCA theory, Heterogeneity, Asymmetric shocks, Adjustment, Financial crises, Sovereign debt crises, Competitiveness, Exchange rate

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