2019

Literature Review:
Critique of European
Monetary Union
MAY 2019
CHRISTIAN ZIPPER, GERHARD LECHNER
 Literature review: Critique of European Monetary
Union
Christian Zipper1, Gerhard Lechner2
FH JOANNEUM University of Applied Sciences, Eggenberger Allee 11, 8010- Graz, Austria

Abstract

The paper summarizes the literature of the explanations of the European debt crisis. We mainly
use literature which was published after the financial crisis 2007/08. Many papers were written
about the topic, but there is no clear overview about the different EMU critique. This paper tries
to fill this gap. The discussions about advantages and disadvantages started at the end of the
1980s, but they intensified during and after the debt crisis. We classified the literature into non-
European and European Economic Monetary Union (EMU) critique. Within the non-European
literature especially US economists are relevant who referred to the issue of Optimal Currency
Area (OCA). Europe did not fulfil the OCA criteria in their view. The European critique can be
divided into ordoliberal, Post-Keynesian and heterodox thoughts. Most relevant for politics is
still the ordo liberal EMU critique.

Keywords: European Monetary Union, European government debt crisis, ordo liberalism,
balance of payment, Post-Keynesian Economics

1
Christian.zipper@edu.fh-joanneum.at
2
Gerhard.lechner@fh-joanneum.at
1. Introduction and methodology

The introduction of the Euro brought a lot of advantages to the participating countries, namely, for
transparency for prices, the omission of currency fluctuations and the fact that the Euro has been a new
leading currency beside the USD. However, after the crisis many disadvantages of the common
European currency became visible. A lot of critical literature has been published to the Economic and
Monetary Union (EMU) before and after the breakout of the financial crisis in 2008 (for example:
Campos/Machiarelli 2016, Neaime et. al 2018, Issing 2011, Ferry 2013). Although many studies
describe the disadvantages and failures of the EMU, there is no survey that summarizes and discusses
the results. This issue creates confusion to politicians and investors who do not have a clear picture of
the disadvantages of the EMU and possible policy changes that can correct the issues.

The present study therefore closes an important gap in the literature and it is the first comprehensive
review of older and current literature about the critique of the EMU. One literature review has already
been done by Jonung/Drea (2009), but it is focusing on the US EMU critique from the period of 1989-
2002 where the reactions to the European government crisis are not reflected. The aim of this study is to
survey the literature about different critiques of the EMU and to structure the literature in terms of
regions (European and Non-European view) and dogmatic views. Hence readers will get an overview
and a deeper understanding about the failures and disadvantages of the EMU. Our study should make
life easier for politicians and economists who are responsible for the performance of the EMU.

Concerning the methodology, we tried to get a clear picture of the EMU critique through a detailed
research of the tremendous literature. Of course, it was not possible to review the whole literature to this
topic, but we considered the papers of all relevant schools of thought. Our aim was to be as neutral as
possible, because this paper is no contribution to a solution of the issues of the EMU. We especially
regarded literature after the financial crisis 2007/08. We used sources like sciencedirect.com,
EBSCOhost databases, ssrn.com and google scholar to find relevant peer reviewed papers and working
papers. Furthermore, we searched for relevant monographies of prominent economist to the topic (for
example: Stiglitz 2017). Especially, in the German literature there is a broad discussion about the
functionality of the EMU. The results of the survey show that each school has certain critical arguments
against the EMU. At some point additional papers circle around the arguments already brought forward.

This paper contributes to the literature in many ways. First, it closes an important gap in the literature
by presenting a survey that summarizes results of many important studies. Therefore, the reader is able
to look at the dynamic nature of the critique of the EMU. Second, the reader gets a clear picture about
the different critiques of academic and non-academic literature in Europe and in the rest of the world.
To some kind the survey shows that the literature in Europe is strongly influenced by political views.
Second, it shows that economic policy is still dominated by two doctrinaire groups, namely, the
neoclassical side and Post-Keynesian macroeconomic perspective. The German neoclassical school is
often called ordoliberalism.

2. Non-European EMU critique before and after European debt crisis

In this chapter we want to review the non-European critique of the EMU before and after the European
debt crisis. We want to start with this chapter, because before the start of the Euro, mainly prominent
US economists criticized the Euro project. Some of them warned Europe about the risks of EMU. We
define the beginning of the EMU crisis in 2010. All papers considered before 2010 are defined as “before
crisis” and starting from 2010 is defined as “after the crisis”.

2.1 Non-European EMU critique before the Euro crisis

We found one literature review of Jonung/Drea (2009) which is based on 170 US publications,
whereby 130 came from the academic side and 40 by economists of the Federal Reserve System. This
survey covers only literature within the period of 1989-2002. Therefore, it does not cover the EMU
critique after the outbreak of the European government debt crisis. Furthermore, it has to be noted that
this literature review has been done by economists of the Directorate-General for Economic and
Financial Affairs which is part of the European commission. In any case, the literature review gives an
excellent overview about the EMU critique of US economists before the outbreak of the European debt
crisis. The results of the study demonstrate that economists of the Federal Reserve System have basically
a positive view towards EMU integration at least in comparison to US academic economists. The
Optimal Currency Area (OCA)3 inspired view of the academic economists resulted in a common view,
namely, “the EMU members are far away from a well functioning monetary union” in comparison to the
US. The reasons for failure are a lack of pan-European fiscal redistribution mechanism, the low labor
mobility in Europe and a higher frequency of regional asymmetric shocks (Jonung/Drea 2009, p. 33).
The OCA approach led to the view that the Euro can be regarded as a political rather than an economic
project. Jonung/Drea (2009) criticized the OCA paradigm of US economists as a static view and US
economists failed to regard the Euro as an evolutionary process. Representatives of the OCA critique
were famous economists like Krugman (1993), Sala-i-Martin/Sachs (1991), Eichengreen (1990, 1991),
Bayoumi/Eichengreen (1993), Mundell (1997), Inman/Rubinfeld (1992), McKinnon (1994) and many
other prominent economists4.

A representative of neo-Keynesian economics is the US economist Cohen. He wrote several papers

about the Euro and he generally assumes that the Euro can be no rival to the USD. Cohen found three
major disadvantages of the Euro, namely, “relatively high transaction costs, due to inefficiencies in
Europe´s financial markets, a serious anti-growth bias and ambiguities in the heart of the governance
structure” (Cohen 2007, 2008, 2009). Cohen did not refer especially to the OCA in his publications,
however, for him the major issue is a lack of hegemony of European institutions which leads to serious
issues during crisis times like in 2008/09. The critique of Cohen shows a completely different EMU
critique than his more neoclassical US colleagues. For Cohen neoclassics are right, but for the wrong
reasons.

2.2 Non-European EMU critique after the Euro crisis

An important contribution concerning the non-EMU critique after the crisis came from Martin
Feldstein who is a very prominent US economist. Feldstein (2013,2015) wrote to papers where he
criticizes the EMU countries. In his first paper Feldstein emphasizes that EMU political leaders were
talking about a move of the EMU towards a political union. However, in fact they have done very little
to come closer to a political union (Feldstein, 2013, p. 436). Feldstein (2013) states a progress of some
countries like Italy or Spain. However, the actions of these countries have been done unilaterally and
were not the result of coordination within the EMU. Finally, Feldstein indicates that he still believes that
the introduction of the Euro was a political mistake, because geographic mobility and fiscal structure are
not comparable with the United States.

Feldstein (2015) again wrote a paper on the EMU crisis two year later. He still points out that the euro
was a flawed concept from the beginning. However, the target of this paper was to discuss some fiscal
options to find a way out of the crisis. The solution for Feldstein would be a revenue neutral fiscal
incentives strategy. That means for example investment should be stimulated through a temporary
increase in the tax-deductible depreciation rate on new investments in plant and equipment. On the other
side, the resulting revenue loss should be compensated through a temporary increase in the corporate tax
rate. Another possibility would be for example a direct tax incentive for home builders. The revenue loss
could be offset by an increase in tax rates “in a revenue neutral and distributionally neutral way”
(Feldstein, 2015, p. 426). Another example would be an increase in the value added tax and a decrease
of the income taxes. This would stimulate consumers to increase their spending before the value added
tax rate will be increased. This fiscal changes should be enacted by the individual EMU countries.

An interesting paper about the crisis of the EMU was written by the US economist Frankel (2015).
His analysis of the euro crisis brought three major issues of the EMU, namely, the asymmetry problem,
the fiscal problem and the banking problem. The asymmetry problem is arising from the fact that
members of the Euro area are not able to devalue their currency if necessary. This issue is of course
especially relevant for the peripheral countries. The fiscal problem refers to the moral hazard problem
and the inability of peripheral countries to observe the Maastricht criteria (especially budget deficit and
government debt). Concerning banking supervision Frankel criticizes that European policy never took

3
OCA theory was developed by Mundell (1961), McKinnon (1963 and Kenen (1969).
4
You find more detailed results of their studies in the Appendix (Table 1).
into consideration a supervision through the ECB which is a European institution. However, Frankel
already mentioned that European policy was on the wright patch concerning this issue. Then, Frankel
compares the EMU with the monetary union in the US and he argues that the EMU was a faulty design,
because many prospective EMU members did not fulfil the Optimal Currency Area (OCA) criteria.
However, the 50 American states also never fulfilled these criteria. Frankel especially addresses the issue
of labor market flexibility. Europeans thought that if they went ahead with EMU, the loss of monetary
instrument will force increased flexibility. However, this did not happen to such an extent. After all, an
important difference between EMU and US monetary union was the fact that the US never bailed out
any federal government in the history. An advantage of the US system is the tendency of interest rate
spreads to react earlier on spendthrift of American states. When the interest rate alarm sounded for
Greece it was already too late to get Greece back on the right path. Another advantage of the US system
was that a fiscal union was established in 1789. Frankel discusses the possibility that Europe can
introduce a fiscal union in the short run and his answer is negative, because German taxpayers will not
accept that step. Even in the long run it is not easy to establish a fiscal union or Eurobonds in Euro area,
however, the German taxpayer will have to accept a further implicit price tag to ensure the survival of
EMU. Another interesting suggestion of Frankel is that the ECB should buy US bonds in order to force
a devaluation of the Euro. Furthermore, it would be a good idea for Germany to accept higher than 2%
inflation for many years. That means wage increases should be much higher than productivity gains for
a certain period. A consequence of that policy would be a depreciation of the Euro. However, Frankel is
skeptical that German policy will risk that step, because of the “morality tale” perspective. Frankel
understands the position of Germany, due to negative historical experience with inflation. Quantitative
easing via the purchase of US bonds and a more expansionary wage policy would be the best medicine
to increase competitiveness in the long run. Expansionary wage policy could be compensated through a
depreciation of the Euro. The basis of the critique of Frankel (2015) is not different from that before the
crisis, because he still refers to the OCA argument, however, the last argument of an expansive wage
policy is interesting, because it is a typical Keynesian argument which can be found also in the European
literature.

Eichengreen (2015) discusses the question “how to end the euro crisis”? Basically, the acute phase of
the crisis is over, but on the other side a chronic phase has begun. The Euro area suffers from weak
growth, weak banks and too high government debt. The EMU needs reforms, because otherwise the
economy will remain fragile and stagnant. One major issue in the Euro area is the weak banking sector.
Two thirds of external finance to non-banks is bank intermediated. In the US the share is just one third.
Therefore, a weak banking system is an obstacle for the whole economy. Furthermore, Eichengreen
criticizes a too restrictive fiscal policy of EMU. He favors the introduction of Eurobonds or a fiscal union
to increase the fiscal stimulus for the economy. Finally, he emphasizes “the old issue” of inflexible labor
and product markets. Structural reforms are necessary to get out of the “chronic phase” of the crisis.

Strange (2018)5 argues in a similar direction as other US economists, but he comes from “critical
political economy” perspective. His paper analyzes the euro crisis and the importance of hegemony
within EMU, taking the neo-Gramscian theory as a basis. The reforms after the crisis did not touch
fundamental issues which have to be tackled in order to stabilize EMU. Strange (2018) especially
criticizes that the Euro remains locked into a form of “minimal hegemony”. The Euro area cannot be
regarded as a OCA, it is not a fiscal union or a political union, the ECB is constrained by the mandate
of price stability and there are different political opinions how to lead the Euro area by the two biggest
countries Germany and France. This generates a “political deadlock and discord” of the Euro area.

Bayoumi/Eichengreen (2018) recently investigated whether the Euro area comes closer to a OCA
using updated data. The authors used the symmetry of supply and demand disturbances as the condition
for optimality. They basically confirmed the results of an earlier study (Bayoumi/Eichengreen 1993) that
the US is nearer to OCA than Europe. However, they found that the Euro Area “shows striking changes
in correlations and responses”. They explain this fact by referring to a “hysteresis with a financial twist”
which means that the “financial system causes aggregate supply and demand shocks to reinforce each
other” (Bayoumi/Eichengreen 2018, 1). Before the crisis positive shocks on the aggregate supply side
triggered an increase in aggregate demand. The positive supply shocks increased the productivity of
labor and capital and led to raising asset prices. Higher asset prices stimulated bank lending which
increased investment spending and this increase caused again aggregate supply to rise and more demand

5
Strange is an Australian economist.
raised the price level on the goods market. In the case of a negative demand shock the mechanism
describe worked reverse, because the short term Euro Area supply curve was relatively inelastic,
reflecting real rigidities on product and labor markets. Lower product prices as a consequence of lower
aggregate demand also reduced asset prices causing the financial mechanism to run reverse. The result
was an exaggerated fall in output and prices (deflation). Germany and the periphery had correlating
aggregate supply and aggregate demand shocks, because the aggregate supply shock in Germany (in the
form of Hartz II) led to accelerated growth in Germany which spread to core countries because of
increasing bank lending from the core to the periphery. The incentive for core countries to increase bank
lending was higher interest rates in the periphery countries (Bayoumi/Eichengreen 2018, 2).

3. European EMU critique

This chapter is structured in the following way: First, the EMU critique from two major German
(ordoliberal) economists is reviewed and second the results of many studies from other mainstream
economist are presented. It should demonstrate that the basic doctrinaire critique between ordoliberal
and other mainstream economists follows the same fundamental conviction.

3.1 Critique of ordo liberal German economists

The most important and profound critique from German economists comes from Hans Werner Sinn,
and the former president of the German Bundesbank Otmar Issing who basically follow an ordoliberal
approach. The basis of ordo liberal theory and policy was well described in the paper of Bonefeld (2012).
This critique is especially relevant for European institutions like the European commission and the ECB,
because ordoliberal rules are still a dominant position within these institutions.

3.1.1 Otmar Issing

Otmar Issing was a member of the board of directors of the ECB and he was responsible for the
development of monetary policy strategy of the ECB (Issing, 2006). Otmar Issing (2011) wrote a paper
during the crisis period where he refers to Article 122 of the EU Treaty. For him Greece’s woes were
overwhelmingly of its own making. According to article 122(2) it is allowed for member states to help
countries in danger, when there is a natural disaster or exceptional occurrences beyond the control of the
country. Therefore, helping Greece was a violation of the non-bailout clause (Article 125) and this
abandonment promotes the expansion of the monetary union in the direction of a transfer union. Issing
does not acknowledge the fact that the crisis was an exogenously caused event and it was beyond the
control of Greece. Therefore, one could argue that the bailout was allowed according to article 122(2).

Issing (2011) criticized that the EMU was no longer an optimum currency area (Mundell 1961),
because the political “overcame economic reservations”. Mainly government debt to GDP was
increasing sharply in many Euro area countries, because of too high budget deficits. For example, Greece
did not fulfil the Maastricht criteria concerning budget deficit in all the years since they entered the Euro
area, despite high GDP growth figures. A second issue for Issing was the growth of unit labor costs
which is wages divided by productivity. Average growth of unit labor costs in Greece, Portugal, Italy,
Spain and Cyprus was much higher than in Germany or in Austria between 1999 and 2009. With flexible
exchange rates the peripheral countries could have corrected these divergences through depreciation of
their currencies. The divergences in the growth of unit labor costs are reflected in the current account of
these countries and Issing referred to the issue “years of discipline” concerning wage policy are
necessary in these countries to increase their competitiveness (Issing 2011). From the perspective of
now we know that Issing was right. The reluctance of the peripheral countries in their wage policy led
to extremely weak or negative GDP growth rates and an increase of unemployment. Furthermore, the
attitude of Issing demonstrates the difference between the European and Non-European OCA inspired
critique. Implicitly Issing believes that the ordoliberal rule-based system is OCA inspired. Issings
attitude contradicts the OCA theory of US economists. According to Issing the failure of the euro can
be mainly explained by a policy mistake of the peripheral countries.

3.1.2 H.W. Sinn

 During the crisis Sinn (2010) already criticized that the Euro has not been as beneficial as often
claimed. Especially for Germany the Euro was a disadvantage, “because of a lack of proper private and
public debt constraints”. This fact has stimulated the periphery countries to an overheating situation
which became very dangerous for the whole EMU. Sinn criticized the rescue measures of the European
Union because of the moral hazard effects they generate.

After the European government debt crisis in Europe, Sinn published two books where the “EMU
crisis” is a major topic. For Sinn (2016) the EMU is endangered from two major events, namely, Brexit
votum and the decision of the German Federal Constitutional Court concerning the Outright Monetary
Transactions (OMT) program of the ECB which supports attitudes of one country for other countries
within the EMU. Sinn (2016) criticizes the policy of the southern peripheral countries (Greece, Spain,
Italy, Portugal, Cyprus) who borrow money via the TARGET 2 balances. When Sinn published his
book, the southern peripheral countries had TARGET 2 deficits of 750 billion EUR. In the case of
defaults of southern European banks, the TARGET 2 credits would suddenly disappear and this would
be a significant risk for the whole EMU. Therefore, southern European countries can use this fact as
leverage against core countries in order to get more and more credits. Sinn admits that the European
Union brought many advantages for the participating countries and it could be seen as a story of success,
but the EMU cannot be considered as a successful project for peace and integration in Europe, because
in the southern European countries unemployment is too high for too long (Sinn 2016). This leads to
social and economic issues which cannot be solved easily. Another failure of politics was that countries
with to high debt to GDP ratios were able to enter the monetary union. Italy and Belgium for example
had debt to GDP ratios of more than 100% and 60% was the borderline of the Maastricht criteria (Sinn
2014). Another critique of Sinn concerns the policy of the ECB. From his point of view, the ECB is
supporting overindebted countries and is saving insolvent banks. This policy is an overshooting of
meaningful measures of the central bank and it is supporting bubbles on bond markets and equity
markets (Sinn 2016). The arguments of Sinn (2014,2016) are remembering to the US economist Frankel
(2015) who criticized the moral hazard effects which were generated through the bailouts of peripheral
countries. However, Sinn will not agree with Frankel concerning his suggestion of the expansionary
wage policy of Germany.

3.2 The critique of other mainstream economists

Guerreiro (2012) tried to find the reasons for the sovereign debt crisis in the Euro area with a model
based on Purchasing Power Parity (PPP) theory and the Uncovered Interest Parity (UIP) theory. He
linked these two theories through the expected exchange rate. This approach is called CHEER and it
links the goods market (PPP) to the capital market (UIP). His results show that within a currency union
a country which has high external disequilibria relative to other members will be confronted with rising
interest rate differentials. When these imbalances are persistent it will trigger a balance of payment
crisis. The results of Guerreiro imply the same as the arguments of Issing and Sinn, because a too strong
real exchange rate can only be adjusted through real adjustments like decreases in the wage level.

Neaime et. al (2018) analyzed the causes of the Eurozone debt crisis. They used impulse response
functions, structural VAR specifications and granger causality tests in order to identify domestic and
external nominal shocks and their transmission mechanisms. They found that the root cause of the Greek
crisis emanates from imbalances in its current account which are caused by losses in competitiveness
against Germany and the lack of nominal adjustment through monetary policy. The prediction of the
paper is that Greece will have to go through a prolonged period of adjustment which means a
deflationary period to enhance its competitiveness. The results of this study have very similar
implications than the views of Sinn and Issing.

Pisani-Ferry (2013) made a review of the literature before and immediately after the Euro was adopted
and he found that economists correctly warned politicians about possible risks of the Euro. At the time
of joining, many countries did not fulfil the criteria of an optimal currency area (OCA). The weakness
of the Euro area in comparison to the US were for example less flexibility on the labor markets and the
absence of any risk sharing arrangement. Pisany-Ferry (2013) calls that issue known unknowns which
means that researchers did tell politicians what are the issues of EMU, however, they did not take this
issues seriously enough. Pisani-Ferry also noticed unknown unknowns like the risk of a balance of
payment crisis within the EMU and the positive correlation of banking risks and sovereign risk. The fact
that the average bank assets to GDP ratio of 350 percent in the European Union made the whole system
risky and banking failures led to high sovereign default risks. The second unknown unknown, namely,
the balance of payment crisis was also not correctly forecasted by researchers. Pisany-Ferry (2013) also
mentions the lax fiscal discipline of many countries during the first ten years of the monetary union. The
arguments of the French economist Pisani-Ferry synthesizes the arguments of US economists and that
of the ordoliberal German economists.

Paul de Grauwe (2011a, 2011b) is also a liberal economist and his research focus is EMU. He has
written two papers about the European debt crisis in 2011. Firstly, De Grauwe (2011a) called attention
to the fact that a member country of a currency union has a higher default risk than a country with a
local currency, because this member country has no access to his currency and the financial markets can
force the country into sovereign default. De Grauwe (2011a) also analyzed the issue of balance of
payment crisis in the Eurozone and came to a similar result than Issing and Sinn. A currency devaluation
against the main trading partner is not possible for the peripheral countries and therefore, they have to
make an internal devaluation via lower unit labor costs in order to increase their competitiveness. This
will be a very painful and turbulent process. A further result of the research of De Grauwe (2011b) was
that the ECB should act as a lender of last resort in the government bond markets of the monetary union.
This function as a lender of last resort is necessary, because otherwise countries could be pushed into
“bad equilibria by self-fulfilling fears of a liquidity crisis in a monetary union”. Concerning the last
arguments De Grauwe is especially different to Sinn, because for Sinn ECB interventions inspire moral
hazard problems. Therefore, De Grauwe cannot be regarded as a hardliner of the rule-based ordoliberal
system.

Brady/Magazzino (2018)6 investigated the sustainability of government debt in the 19 EMU countries
from 1970-2016. They used a panel root test in the presence of cross-section dependence of these
countries. The results show that the Government debt series is stationary which indicates the solvency
of the 19 countries. Furthermore, they used Markov-switching models to test the mean government debt
in two different periods. They just used 12 selected EMU countries for this model and found that the
coefficients are different across states. Overall, the mean of government debt is higher in more recent
years than in the 1970s. The study has also interesting findings concerning current fiscal policy. The
authors suggest a more expansive fiscal policy in order to improve economic growth in the short run.
This is more a Keynesian argument. In this article there is a mixture of findings. On the one side,
austerity policy is good and assures solvency of EMU countries, but on the other side, it is necessary to
stimulate the economy via more expansive fiscal policy.

4. Critique of European Keynesian economists

4.1. H. Flassbeck

Flassbeck/Lapavitsas (2015a) emphasize the importance of inflation as the major goal of monetary
policy of the ECB. The goal is that inflation should be a little bit below 2%. From a mainstream
economic perspective, it is now clear that wages should be approximately 2% higher than productivity.
If all countries follow this rule the inflation goal could be reached. If we go back to the introduction of
the Euro there is just one country which followed this rule, namely, France. Germany and also the
peripheral countries did not follow this rule. Germany is much below this target and the peripheral
countries were much above the target (until 2008). The consequence was that Germany had a current
account surplus and the peripheral countries had a current account deficit (Flassbeck 2015). The solution
to the government debt and balance of payment crisis is simply that Germany has to increase unit labor
costs in relation to the peripheral countries. Flassbeck (2015) suggested that Germany has to increase
wages significantly in order to get back to equilibrium. In Germany private households, enterprises and
the government are saving. This situation is only possible when other countries like the peripheral
countries increase their debt, otherwise the German model could not work any longer. The decision
within the Euro area was that the peripheral countries had to increase competitiveness via lower unit
labor costs on a relative basis. This suggestion worked with the price that in the peripheral countries
unemployment was rising significantly. The critique of Flassbeck (2015) showed the seriousness of the

6
Brady is an US economist and Magazzino is an Italian economist.
Euro crisis, especially when Germany does not come away from the saving policy. This argument is
very similar to that of Frankel (2015) who favors an expansionary wage policy of Germany.
Interestingly, Flassbeck/Lapavitsas also make a rule-based unit labor cost policy suggestion. The Post-
Keynesian explanation of Flassbeck is different from Sinn and Issing. For Flassbeck/Spiecker (2007)
the reason of low economic growth and high unemployment in Germany was due to a policy which was
not oriented towards the demand side.

Flassbeck//Lapavitsas (2015b) discussed an interesting option, namely the exit of peripheral

countries, due to fundamental issues in their countries. The major beneficiaries of the Euro have been
German exporters and large German banks and the losers have included working people and peripheral
countries in general. Flassbeck/Lapavitsas accentuate the importance of an orderly exit of these
countries. The interest of working people in these countries are better protected through flexible but
managed exchange rates and “the longer the EMU perseveres in its current framework, the graver will
be the danger of social and political catastrophe in Europe”.

4.2 A. Heise

Heise (2012) can be considered as a Post-Keynesian economist and firstly he concedes that monetary
and fiscal policy have learnt their lessons from the Great Depression of the 1930s. However, secondly
what is true generally is not true for each country of the Eurozone. He criticizes that the European
governance system put some Eurozone member states on a course that resembles that of the Great
Depression. The output gap of these countries is almost as bad as in the 1930s and the duration of
recovery could even be longer. The consequence of this policy could be a dangerous wage-price
deflation spiral in the long run. The European institutions tried to resolve the crisis with many additional
reforms (EFSF, ESM, European Stability and Growth Pact), however, the reform measures did not work.
To the contrary the situation has become worse than before, because the reform package used the same
medicine as before, it even increased the dose. Heise (2012) especially refers to balanced budgets and
pressures on government spending and wage increases. The European economic governance system is
based on mistrust and follows the economic mainstream doctrine. Therefore, Post-Keynesian principles
are a necessary step to avoid the breakup of EMU. In comparison to Flassbeck, Heise favors a more
radical Keynesian policy than Flassbeck, because he did not refer to the inflation goal and to a common
unit labor cost policy. Heise also does not prefer the “exit strategy” of peripheral countries.

4.3 B. Young

Young (2014) criticized the explanation of the crisis of the EMU from the German ordoliberal
economists. Especially, the German Bundesbank prevents any discussions about alternatives to the
austerity policy in the Eurozone. The idea of perfect market competition never worked in practice and
therefore the rule-based ordo liberal doctrine does not deliver relevant suggestions to solve the Eurozone
debt and balance of payment crisis. She calls the ordo liberal doctrine a “dangerous idea” and supports
the Keynesian critique of a pro-cyclical austerity policy. The government spending multiplier is stronger
during recessionary times. That means a restrictive or a tight fiscal policy has a significant negative
impact on GDP. More austerity will also fail to improve the competitiveness of the peripheral countries.
Finally, Young concludes that a more social and ethical oriented model for European institutions is
necessary to increase the loyalty and trust of the European citizens and she cites Pope Francis who favors
a more ethical, inclusive and social capitalism. Young represents a similar approach than Heise
concerning the pro-cyclical ordo liberal approach which is no option for her.

4.4 E. Stockhammer

Another important Keynesian explanation of the debt crisis comes from Stockhammer (2011). The
basic argument of Stockhammer turns on the imbalances of the balance of payment of the peripheral and
core countries of the Euro area. His analysis is very similar than that of Flassbeck (2015) and
Flassbeck/Lapavitsas (2015). However, Stockhammer came up with the argument earlier. The balance
of payment crisis of the Euro area has been caused by too much saving of Germany, because Germany
followed the export-led growth strategy in contrast to peripheral countries which follow the credit-based
growth strategy and as a consequence peripheral countries saved to less money. The solution to the crisis
is the contradiction to the ordo liberal suggestions (Issing, Sinn). Stockhammer favors a change of the
wage policy of Germany and in the other core countries. Wages have to increase above the level of
productivity growth and inflation in the center of Europe (Germany, Austria, Netherland) (see Flassbeck
2015). Furthermore, an increase in the wage share in Europe would have an expansionary impact on
growth (Stockhammer et. al 2009). As a whole Stockhammer cannot be considered as a typical Post-
Keynesian economist, because he tries to find a synthesis between Post-Keynesian economics and
critical political economics (Stockhammer/Köhler 2015, 36-37). He explains very well the difference
between Post-Keynesian economics and Critical political economics. Concerning, EMU Post-
Keynesians focus on economic policy and its influence on income distribution and aggregate demand.
Critical Political economics is concerned with a theory of the state and how different class agents
influence state policies. This economic theory emphasizes the importance of regulation for EMU. A
similar synthesis approach concerning EMU critique comes from Becker et. al (2015).

5. Critique of other heterodox economists

Coccia (2017) investigated the evolution of public debts and public deficits in European countries
inside and outside the EMU. The study took macroeconomic data from 1995-2014. The analysis shows
that the development is different inside the EMU and outside the EMU. Nations within the EMU have a
deteriorating trend in public debt ratios in comparison to non-EMU countries starting from 2001.
Concerning the public government deficits, EMU countries had a deficit of 3.83% (arithmetic mean) and
non-EMU countries had a deficit of 1.32% in the period from 2003-2014. This difference in the trend
between inside and outside countries is based on manifold factors. Coccia (2017) also found that the
level of taxes on income and wealth of EMU countries are higher than that for non-EMU countries.
Additionally, fixed investment as % of GDP is lower in EMU countries which has a negative influence
on government debt and as a consequence for economic growth. Coccia emphasizes that EMU countries
will not likely reduce debt-to-GDP ratios, because of structural differences of the countries, economic
instability and low growth rates of population and he criticizes the European institutions support for
balance fiscal policy rules. These rules may not be optimal, because some countries had a high initial
level of public debts. EMU countries will probably stagnate for many years, due to this fiscal rules.
Coccia finally concludes that EMU countries would need an economic policy of debt dissolution and a
redesign of socioeconomic environment to eliminate the basic conditions that cause these issues. Coccia
is specialized on evolutionary economics and has written some papers about technological innovations
(for example: Coccia 2012) and Kondratieff waves (Coccia, 2010). His research is based on a broader
socioeconomic view and his critique to the EMU has to be considered from this perspective. His
arguments sound very similar to that of Post-Keynesian economists who criticize the strict fiscal policy
rules of ordoliberal inspired European institutions.

Ryner (2012, 2015) made some important contributions to the “critical political economy” of the
EMU crisis. The EMU is endangered in an ordoliberal iron-cage and it is not easy to escape from such
iron-cages (Ryner, 2015). The ordoliberal iron cage was and will be responsible for the “anaemic
socioeconomic dynamics” in the southern periphery of Europe. Another phase of finance-led capitalism
will be possible in Europe and the American ideological relationship is and will be very relevant. Ryner
refers to the suggestions of the Euro Memorandum Group, where many representatives of the critical
political economy are leading figures. This group argues for federalist measures like mutualization of
debt (Eurobonds), EU wide industrial policy, EU wide wage co-ordination norms, fiscal transfers and a
larger EU budget and for example a common expansionary fiscal policy of the EU. However, Ryner
indicates that such measures have quite radical implications which are often underestimated. Ryner
emphasizes that it is not easy for any member of the EMU to exit from the German-dominated system,
because of high costs. There are not really realistic ways out of the crisis which are suggested by the old
socialist left. Therefore, the facts may even increase the space of the neoliberal reform in the foreseeable
future. Ryner´s remarks illustrate the approach of the critical political economy which favors a central
EU policy. Some arguments remember on US economists who criticized that a lack of common fiscal
policy and fiscal redistribution is an issue for EMU.

Another approach from a non-Keynesian economist is that of Werner (2014a). Werner (2014b, 2016)
can be regarded as one of the major representatives of the theory that banks are creating money out of
nothing. He made empirical tests to prove his thesis and found that his thesis is correct. Werner got
support for his theory from the Bank of England (2014). His critique to the EMU contains suggestions
to solve the Eurozone crisis. He regards his developed model as an approach to improve the effectiveness
of EMU in general. His solution for the sovereign debt crisis is the so called Enhanced Debt Management
(EDM) which takes into account all funding options to seek cost-effective solutions. When using EDM,
monetary and fiscal policy as well as regulatory issues and debt management should be taken into
consideration. As the major result of the EDM analysis Werner (2014b) prefers the traditional (domestic)
bank loans in comparison to the commonly used bond finance. EDM has several advantages in
comparison to traditional bond management. Bank loans are not tradable and therefore speculative
attacks like that on the peripheral countries are not possible. When using bank loans instead of bond
finance, credit ratings are not relevant. If bank loans are restricted to domestic banks, there is no
dependency from borrowing abroad and the assistance of the Troika and the IMF would not be
necessary. According to the theory of Werner (2014b) the bank loan is the major driver of nominal GDP
growth, because of the possibility for banks to create money out of nothing, saving is not needed to
increase loans. Furthermore, when using bank loans, no capital is needed according to Basel rules. Banks
have the possibility to utilize non-tradable loans as a collateral with the ECB when they need liquidity.
Finally, bank loans are cheaper than issuing bonds and the governments had saved substantial amounts
(in absolute terms) when using bank loans. Werner wrote an interesting comment in the
acknowledgements where he referred to his submission of the paper to “Oxford Review of Economic
Policy”. The paper has been rejected, because “a solution cannot be so simple” and “it doesn´t seem
credible to argue that banks will be able to source funding for such loans on cheaper terms than the
markets fund the sovereign” (Werner 2014b, 467). The critique of Werner to the EMU system can be
deviated implicitly from his EDM model. Funding on the bond market is too “dangerous”, because
speculative attacks could harm the system at any time even if there are no persuasive arguments.
However, there is no reason why the EDM model should only be used for the EMU. In the
acknowledgement there is a further interesting reference of Werner from “Southampton International
Conference” where he cites Prof. Charles Goodhart who said the EDM model could also be implemented
in the UK (Werner 2014b, 467).

6. Conclusions

This paper summarizes the literature of the EMU critique over last 30 years, particularly that after the
Euro crisis. First, we classified the literature in Non-European and European critique, because especially
the US perspective is different. Second, we tried to cluster the different school of thought. The European
critique was divided into ordoliberal, Post-Keynesian and other heterodox schools. Concerning the non-
European economists there is a broader consensus concerning the EMU critique, but there are also
mainstream and Post-Keynesian arguments.

The basis for the US EMU critique was the OCA. The main critical arguments are the lack of labor
mobility, no fiscal redistribution mechanism and regional asymmetry shocks. This critique contains
mainstream (flexible labor markets) and Post-Keynesian arguments (common fiscal policy). After the
crisis some US economists argued for a more expansive fiscal policy in order to stop the negative trend
in the peripheral countries.

European institutions are still dominated by an ordo liberal spirit and therefore, the critique of ordo
liberal economists like Otmar Issing and Hans Werner Sinn became influential on fiscal and monetary
policy. The rule-based approach criticized that the bailout of the peripheral countries endangers the
future of the Euro, because of the moral hazard problem. The ECB followed a “soft ordo liberal”
approach which was represented for example from De Grauwe, because it bought government debt on
the secondary market. The Post-Keynesian critique mainly refers to a failure of wage policy before the
crisis and the pro-cyclical fiscal policy in the peripheral countries after the crisis. Germany saved too
much money and financed the peripheral countries with too much loans. The solution would be that
Germany pursues a more expansive wage policy for a certain time. Finally, the critical political
economists favor a central government strategy like Eurobonds, common wage policy, common
expansionary fiscal policy and a larger EU budget. This approach is basically similar to that of US
economists with the exception of flexible labor markets which remains a neoclassical argument.
 Appendix
Table 1: Non-European EMU critique before the Great Recession 2008/09
Study Research question/Methodology
Eichengreen (1990) Eichengreen wants to find whether
the European Community is the
right region for establishing a
common currency.
Sala-i-Martin/Sachs (1991) The authors compare the US tax
system with the European tax
system in order to get an indication
whether Europe can absorb
regional economic shocks within a
currency area with automatic
stabilizers.
Eichengreen (1991) This paper assesses labor mobility
and the occurrence of shocks in
Europe compared to the US and
Canada.
Inman/Rubinfield (1992) This paper discusses the issues of
fiscal decentralization and fiscal
centralization in the European
Community.
Bayoumi/Eichengreen (1993) Data on output and prices for 11
European community members
and US regions are analyzed with
the target of getting an indication of
the speed of adjustment of shocks
across countries. To analyze the
data VAR decompositions are
used.
Krugman (1993) The author compares the
asymmetric shock of the US region
New England with similar shocks
of European countries within a
currency union.
McKinnon (1994) The authors tests whether a
common monetary standard or a
common currency are more
appropriate for Europe.
Findings
Real exchange rates variability in
the southern periphery is too high.
Therefore: country specific
asymmetric shocks in the southern
periphery are a significant
problem.
The introduction of an own Central
bank in Europe without a
simultaneous fiscal federalist
system could put the whole
European project at risk. The
authors show that the European tax
system has a long way to go before
it reaches an optimal fiscal
federalist system.
Real exchange rates are
considerably more volatile in
Europe. Labor mobility and the
speed of adjustment on the labor
market is lower in Europe.
Therefore: Europe does not fulfil
the criteria of optimum currency
area.
The loss of monetary policy for
members of a currency union raises
the need for high fiscal transfers
within the member states in order
to ease state specific shocks. New
European fiscal institutions might
be necessary in a monetary union.
The authors find that the
underlying shocks between
countries are more idiosyncratic in
European countries. Therefore: it
will be more difficult for European
countries to operate in a currency
union than the US counterparts.
A crisis like that in New England
would have a much more dramatic
impact within a currency union in
Europe, because Europe has no
fiscal federalism like that in the
US. Therefore: A policy reform is
necessary in Europe. Otherwise,
the European economy will pay a
heavy price in the case of
unification.
He concluded that a common
monetary standard is more useful,
because there is a fiscal need to
keep national banks and national
currencies in place in highly

Table 2: Non-European EMU critique after the Great Recession 2008/09
Study
Feldstein (2013)
Feldstein (2015)
Eichengreen (2015)
Frankel (2015)
Strange (2018)
Research question/Methodology
The paper tries to find the progress
of policy coordination within the
EMU after the Euro crisis.
Feldstein describes some fiscal
options of the EMU countries to
find a way out of the crisis.
Eichengreen discusses the question
what the governments and the ECB
could do to end the euro crisis.
Frankel analyzes the issues of the
EMU and tries to make suggestions
to come out of the crisis.
Strange analyzes the euro crisis and
the importance of hegemony within
EMU, taking the neo-Gramscian
theory as a basis.
indebted countries like Greece or
Italy.
Findings
The main argument of Feldstein is
that European political leaders are
talking of more policy coordination
to get closer to a political union.
However, in fact there is not much
improvement of policy
coordination. Feldstein still
believes that the introduction of the
Euro was a mistake.
Feldstein suggests to ”make
revenue neutral fiscal incentives
enacted by individual European
countries”. For example, an
increase in the value added tax and
a decrease of income tax rates. A
higher value added tax would
stimulate consumers to increase
their spending.
Generally, Eichengreen concludes
that the acute phase of the crisis is
over, however, now the chronic
phase began. The Eurozone
basically suffers from chronically
slow growth, weak banks and
chronically high debt. Without any
reforms Euro area will remain
fragile and stagnant. He also
addresses the well known weak
points like inflexible labor and
product markets and the non-
existence of a fiscal union.
EMU crisis brought three major
issues. First, members of the EMU
are not able to devalue their
currency. Second, many EMU
members did not fulfil the
Maastricht criteria. Third, the ECB
is not responsible for banking
supervision. The problems of
Eurozone banks are weak
capitalization, weak governance
and weak supervision.
EMU is still a “minimal
hegemony” which means that the
Euro area cannot be regarded as a
OCA, it is not a fiscal union or a
political union, the ECB is
constrained by the mandate of
optimal inflation. There are also

Bayoumi/Eichengreen (2018) This paper tried to find out whether
Euro area is coming nearer to an
OCA using updated data.
Table 3: European Mainstream EMU critique
Study Research question/Methodology
Issing (2011) Issing discusses arguments against
the bailout of Greece through the
other Euro area countries.
De Grauwe (2011a, b) De Grauwe analyzes the European
debt crisis in 2011.
Pisany-Ferry (2013) Pisany-Ferry made a review of the
literature of before and after the
Euro was adopted. He tried to find
the appropriateness of the
forecasts.
Sinn (2016) Sinn criticizes the EMU from a
German ordo-liberal perspective.
different opinions how to lead the
Euro area.
The US is still nearer to OCA than
Euro area, however, there are
striking changes in correlations and
responses in the Euro area.
Germany and the periphery
countries had correlating aggregate
supply and aggregate demand
shocks
Findings
The bailout of Greece was a
violation of Article 122 of the EU
treaty. Euro area is no longer an
OCA. The growth of unit labor
costs of Greece, Portugal, Spain
and Italy caused significant
imbalances in the current account.
Therefore, the wage policy of the
peripheral countries has to be
corrected. For Issing mainly policy
mistakes were responsible for the
crisis in the Euro area.
Concerning the Balance of
Payment (BOP) crisis the author
comes to a similar conclusion than
Sinn (2016) and Issing (2011).
However, in contrast to Sinn
(2016) De Grauwe favors the
ECB’s role as a lender of last resort
in the bond markets of EMU
countries.
For the author there are two
unknown unknowns. The unknown
unknowns are the BOP crisis and
the high correlation between
banking risk and sovereign risk.
BOP crisis was not correctly
forecasted by researchers. The high
correlation of banking risks and
sovereign risks can be shown via
the average bank assets to GDP
ratio which is at 350 percent. This
makes the whole system risky.
Sinn criticizes the TARGET 2
balances of the EMU countries.
High loans of the peripheral
countries pose a significant risk for
the EMU. Another major issue was
that countries with a too high Debt
to GDP ratio were able to enter the
EMU. Another critique goes in the
direction of the ECB, namely, the

Strange (2018) Strange analyzes the euro crisis and
the importance of hegemony within
EMU, taking the neo-Gramscian
theory as a basis.
Bayoumi/Eichengreen (2018) This paper tried to find out whether
Euro area is coming nearer to an
OCA using updated data.
Table 4: European Keynesian EMU critique
Study Research question/Methodology
Stockhammer (2011) Stockhammer analyzes the BOP
crisis in the Euro area from a
Keynesian point of view.
Heise (2012) Heise criticizes the austerity policy
of the Eurozone member states.
Young (2014) The purpose of this paper was to
criticize the German ordo liberal
approach.
Flassbeck (2015) Flassbeck makes a critical review
of the EMU crisis. He especially
refers to the critique of mainstream
economists.
OMT program which is supporting
bubbles on the markets.
EMU is still a “minimal
hegemony” which means that the
Euro area cannot be regarded as a
OCA, it is not a fiscal union or a
political union, the ECB is
constrained by the mandate of
optimal inflation. There are also
different opinions how to lead the
Euro area.
The US is still nearer to OCA than
Euro area, however, there are
striking changes in correlations and
responses in the Euro area.
Germany and the periphery
countries had correlating aggregate
supply and aggregate demand
shocks
Findings
The argument is similar to
Flassbeck (2015). The major cause
of the BOP crisis in the Euro area
was too much saving of Germany,
which followed the export-led
growth strategy. The solution
would be a change of the wage
policy in Germany and other core
countries.
The criticizes that the output gap of
the peripheral countries is almost
as high as in the 1930s and the
duration of the recovery could even
be longer. Eurozone member states
have sent the peripheral countries
to a dangerous wage-price
deflation spiral. That means a
restrictive fiscal policy in the
peripheral countries is not the right
tool to solve the crisis.
The rule-based ordo liberal
approach does not deliver relevant
solutions for EMU debt and BOP
crisis. A restrictive fiscal policy
during times of a recession leads to
strong multiplier effects and has a
significant negative effect on GDP.
More austerity will also fail to
improve the competitiveness of
peripheral countries.
The main cause of the EMU crisis
was not too expansive fiscal policy
of the peripheral countries, but it
was too high saving of Germany.
Flassbeck criticizes that Germany

Flassbeck/Lapavitsas (2015)
The authors are discussing the
failures of economic policy which
led to the EMU crisis.
also transgressed against
Macroeconomic Imbalance
Procedure (MIP), because current
account surplus increased above
6% of GDP.
The major goal of the ECB is an
inflation rate a little bit below 2%.
Therefore, wage growth has to be
2% higher than productivity in the
long run. The problem was that
Germany was much below and the
peripheral countries much above
this target. Furthermore, the
authors favor an exit of the
peripheral countries from EMU.

References
Bank of England, 2014. Money in the modern economy: An introduction by Michel McLeay, Amar Radia and
Ryland Thomas of the Bank´s Monetary Analysis Directorate. Quarterly Bulletin, Q1.

Bayoumi, T., Eichengreen, B. , 1993. Shocking aspects of European monetary unificaton. In: Torres, F.,
Giavazzi, F. (Eds.), Adjustment and Growth in the European Monetary Union. Cambridge University Press,
Cambridge, pp. 193–229.

Bayoumi, T., Eichengreen, B. 2018. Aftershocks of monetary unification: Hysteresis with a financial twist. Journal
of Banking and Finance 000, Accepted manuscript. pp. 1-13.

Becker, J., Jäger, J., Weissenbacher, R., 2015. Uneven and dependent development in Europe: The crisis and its
implications. In: Jäger, J., Springler, E. (Eds.), Asymmetric Crisis in Europe and Possible Futures. Routledge
Taylor Francis Group. pp. 81-97.

Bonefeld, W., 2012. Freedom and the strong state: on German ordoliberalism. New Political Economy 17(5), pp.
633–56.

Brady, G. I., Magazzino, C., 2018. Government debt in EMU countries. The Journal of Economic Asymmetries.
Accepted Manuscript.

Campos,F.N., Macchiarelli, C., 2016. Core and periphery in the European Monetary Union: Bayoumi and
Eichengreen 25 years later. Economic letters 147, pp. 127.130.

Coccia, M. 2010., Foresight of technological determinants and primary energy resources of future economic long
waves. International Journal of Foresight and Innovation Policy 6(4), pp. 225–232.

Coccia, M. 2012., Evolutionary growth of knowledge in path-breaking targeted therapies for lung cancer: radical
innovations and structure of the new technological paradigm. International Journal of Behavioural and
Healthcare Research 3(3-4), pp. 273–290.

Coccia, M., 2017. Asymmetric paths of public debts and of general government deficits across countries within
and outside the European monetary unification and economic policy of debt dissolution. The Journal of
Economic Asymmetries 15, pp. 17-31.

Cohen, B., 2007. Enlargement and the international role of the Euro. Review of International Political Economy
14(5) , pp. 746-733.

Cohen, B., 2008. The International Monetary System: Diffusion and Ambiguity. International Affairs 84(3), pp.
455-470.

Cohen, B. 2009. Global Currency Rivalry; Dollar Dominance, Euro Aspirations: Recipe for Discord? Journal of
Common Market Studies 38(3), pp. 741-766.
De Grauwe, P., 2011a. The Governance of a Fragile Eurozone. CEPS Working Paper nO. 2012/10, July.

De Grauwe, P., 2011b. The European Central Bank: Lender of Last Resort in the Government Bond Markets?
CESifo. Working Paper No. 3569. Category 7: Monetary Policy and International Finance. September 2011.

Eichengreen, B., 1990. Costs and benefits of European monetary unification. CEPR Discussion Paper, no. 353.

Eichengreen, B., 1991. Is Europe an Optimal Currency Area? NBER Working Paper, No. 3579.

Eichengreen, B., 2015. How the euro crisis ends: Not with a bang but a whimper. Journal of Policy Modeling.
37. pp. 415-422.

Feldstein, M. 2013. Coordination in the European Union. Journal of Policy Modeling. 35. pp. 434-439.

Feldstein, M. 2015. Ending the Euro crisis. Journal of Policy Modeling. 37. pp. 423-427.

Flassbeck, H., 2015. Die Eurokrise und die Krise des ökonomischen Urteilsvermögens. Blickpunkt 124, pp. 165-
171.

Flassbeck, H., Spiecker, F., 2007. Das Ende der Massenarbeitslosigkeit. Mit richtiger Wirtschaftspolitik die
Zukunft gewinnen. Frankfurt: Westend Verlag.

Flassbeck, H, Lapavitsas, C., 2015a. Nur Deutschland kann den Euro retten. Frankfurt: Westend Verlag.

Flassbeck, H. Lapavitsas, C., 2015b. Confronting the failure of the European Monetary Union. In: Jäger, J.,
Springler, E. (Eds.), Asymmetric Crisis in Europe and Possible Futures. Routledge Taylor Francis Group. pp. 131-
148.

Frankel, J., 2015. The euro crisis: Where to from here? Journal of Policy Modeling 37, pp. 428-444.

Guerreiro, D., 2014. Is the European debt crisis a mere balance of payment crisis? Economic Modelling 44, pp.
S50-S56.

Heise, A., 2012. Governance without Government or: The Euro crisis and What went wrong with European
Economic Governance. Discussion Paper. Zentrum für Ökonomische und Soziologische Studien . University of
Hamburg.

Inman, R.P. Rubinfeld, D. 1992. Fiscal federalism in Europe. Lessons from the United States. European
Economic Review. 36 (2), pp. 654-660.

Issing, O. 2006. The ECB’s Monetary Policy Strategy: Why did we choose a two Pillar Approach? 4th ECB
Central Banking Conference.

Issing, O., 2011. The crisis of European Monetary Union – Lessons to be drawn. Journal of Policy Modelling 33,
pp. 737-749.

Jonung, L., Drea, E., 2009. The euro: It can´t happen, it´s a bad idea, it won´t last. US economist on the EMU
1989-2002. In European economy. Economic papers 395. Brussels.

Kenen, P., 1969. The Theory of Optimum Currency Areas: An Eclectic View," in Robert A. Mundell and
Alexander K. Swoboda (eds), Monetary Problems of the International Economy, Chicago: University of Chicago
Press, pp.41-60.

Krugman, P. 1993. Lessons of Massachusetts for EMU. in Torres F. and Giavazzi, F. (eds). Adjustment and
Growth in the European Monetary Union. New York: Cambridge University Press. pp. 241-261.

McKinnon, R., 1963. Optimum Currency Areas. American Economic Review 53, pp.717-725.

McKinnon, R., 1994. A common monetary standard or a common currency for Europe? Fiscal lessons from the
United States. Scottish Journal of Political Economy 41 (4), pp. 337-357.
Mundell, R. A., 1961. A theory of optimum currency areas. American Economic Review 41, pp. 657–665.

Mundell, R. A., 1997. Currency areas, common currencies and EMU. American Economic Review 87 (2), pp.
214-217.

Neaime, S., Gaysset, I., Badra, N., 2018. The Eurozone debt crisis: A structural VAR approach. Research in
International Business and Finance 43, pp. 22-33.

Pisani-Ferry, J., 2013. The known unknowns and unknown unknowns of European Monetary Union. Journal of
International Money and Finance 34, pp. 6-14.

Sala-i-Martin, X. Sachs, J. 1991. Fiscal federalism and optimum currency areas: Evidence from Europe from the
United States. NBER Working Paper Series, no. 3855.

Sinn, H.W. 2010. Rescuing Europe. CESifo Forum. Working paper.

Sinn, H., 2014. Gefangen im Euro. München: Redline Verlag.

Sinn, H., 2016. Der schwarze Juni. Brexit, Flüchtlingswelle, Euro-Desaster – Wie die Neugründung Europas
gelingt. Third edition. Freiburg: Verlag Herder.

Stiglitz, J., 2017. The Euro and its threat to the future of Europe. New York: W. W. Norton & Company.

Stockhammer, E., 2011. Peripheral Europe´s debt and German wages. International Journal of Public Policy 7,
pp. 83-96.

Stockhammer, E., Onaran, Ö., and Ederer, S., 2009. Functional income distribution and aggregate demand in the
Euro area. Cambridge Journal of Economics 33 (1), pp. 139-159.

Stockhammer, E., Köhler, K., 2015. Linking a post-Keynesian approach to critical political economy: Debt-
driven growth, export driven growth and the crisis in Europe. In: Jäger, J., Springler, E. (Eds.), Asymmetric
Crisis in Europe and Possible Futures. Routledge Taylor Francis Group. pp. 34-49.

Strange, G., 2018. The euro crisis, euro reform, and the problem of hegemony. Asia Europe Journal 16, pp. 125-
139.

Werner, R.A., 2014a. Enhanced Debt Management: Solving the Eurozone crisis by linking debt management
with fiscal and monetary policy. Journal of International Money and Finance 49, p. 443-469.

Werner, R.A., 2014b. Can a bank create money out of nothing? The theories and the empirical evidence.
International Review of Financial Analysis 36, pp. 1-19.

Werner, R.A., 2016. A lost century in economics: Three theories of banking and the conclusive evidence.
International Review of Financial Analysis 46, pp. 361-379.

Young, B., 2014. German Ordoliberalism as Agenda Setter for the Euro Crisis: Myth Trumps Reality. Journal of
Contemporary European Studies, pp. 276-287.