Optimal Currency Area Revisited
Title: Optimal Currency Area Revisited
Author: MERSCH, Yves
Series/Number: EUI RSCAS DL; 2011/01; Pierre Werner Chair Programme on Monetary Union
Several euro area member states are under increased market scrutiny although public finances in the euro area as a bloc are in a much better shape than in the US or Japan. The main reason is that the euro area is an alliance of sovereign countries with most of the relevant political decisions - including public finance - being taken by national governments whereas the other major currencies are sovereign states with central governments and budgets. In the absence of a central government and an internal nominal exchange rate, effective rules are required to safeguard the stability of a currency area. The current crisis has disclosed the weaknesses of the institutional set up of the euro area. Europe has already undertaken major steps to tackle these. Challenges remain, however, to further proceed in the direction of an Optimum Currency Area.
Subject: Euro area; public finance; institutional set up; Optimum Currency Area
Document is based on a distinguished lecture held in Florence on 26 October 2011 by Yves Mersch, Governor of the Banque centrale du Luxembourg and Member of the Governing Council of the European Central Bank
Type of Access: openAccess