Abstract
The last decade has been turbulent for the EMU, with many structural weaknesses becoming apparent. While in a state of emergency, the European Central Bank has had to “reinvent” itself in order to stabilize the Eurozone, while the vital importance of the imbalances between the member states has been recognized, as the establishment of the Macroeconomic Imbalances Procedure (MIP) indicates. Yet, it is widely acknowledged that the architecture of the Eurozone needs structural reforms. This policy brief aims to present the case for the adoption of the core ideas of the “Keynes Plan” for an International Clearing Union, which could function as an important first step towards fighting intra-eurozone imbalances, hence strengthening the EMU. Given the existence of the European Central Bank and the common currency, a moderate version of such a plan could be implemented even without the need for any changes in the EU treaties, and could be the stepping stone for further economic integration.
Highlights
Since the Global Financial Crisis erupted in 2007 and the chain reaction it caused – especially in the European economies – the criticism towards the accumulation of excessive trade surpluses by some countries has resurfaced
This policy brief aims to present the case for the implementation of the “Keynes Plan” in the Eurozone, as has been proposed by the relative literature
With the support of two of the most influential countries in the Eurozone, it is safe to assume that sooner or later a version of the European “Financial Transactions Tax” will be introduced. Whether this initiative suffices for the prevention of financial speculation remains to be seen. This policy brief aimed to present the core elements of the “Keynes Plan” and how it could work within the Eurozone framework
Summary
Since the Global Financial Crisis erupted in 2007 and the chain reaction it caused – especially in the European economies – the criticism towards the accumulation of excessive trade surpluses by some countries has resurfaced Countries such as China, Japan and Germany have been accused of creating severe imbalances in international trade, which spark recessionary effects on other countries due to rising unemployment and current account deficits. As Krugman, Obstfeld and Melitz (2018: 580) mention “external balance is attained when a country’s current account is neither so deeply in deficit that the country may be unable to repay its foreign debts in the future nor so strongly in surplus that foreigners are put in that position”. For years the idea that surplus countries should adjust their current account balance (just like the deficit countries) has been swept under the carpet, it is once again gaining traction even among mainstream economists after a turbulent decade of economic uncertainty
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