Asymmetries in post-war monetary arrangements in Europe: From Bretton Woods to the Euro Area

Abstract

This paper provides a perspective on monetary cooperation in Europe, before and after the creation of the euro area (EA), focusing on macroeconomic and financial asymmetries among its member states. After surveying the evolution of EU macroeconomic and monetary arrangements and developments before and after the creation of the euro, and particularly the euro area crisis, we argue that economic and financial asymmetries have played a key role in post-war monetary arrangements in Europe. Such asymmetries have also characterized the euro area, which needs fundamental fiscal, financial and labor market reforms in order to operate more efficiently as an optimum currency area. Two key reforms would be a common EA budget of sufficient size, which would help smooth out the asymmetric impact of macroeconomic shocks through the operation of automatic fiscal stabilizers and the explicit recognition of the ECB as a lender of last resort in times of crisis.