European Monetary Integration Research Articles

STABILIZATION MECHANISMS OF EU MONETARY POLICY IN THE CONTEXT OF INTERACTION WITH THE FINANCIAL SPHERE OF UKRAINE

Existing classic methods of analysing the monetary policy of the central bank, such as the aggregate response function, explain the behavior of the ECB in a rather simplified way. This is the result of the fact that classical methods do not consider the regional features of the members of the European Monetary Un ion and the structure of the system of central banks. The study of monetary policy with the involvement of macroeconomic theories of organization, theories of teams and coalition behavior, which are new for a macroeconomic subject, can make a significant contribution to the research process of European monetary integration. Since European integration is declared as a strategic direction of Ukraine’s economic development, the analysis and generalization of the problem of the modern European economy in the context of the impact of Russia’s war against Ukraine from 2022 is relevant. Therefore, in order to understand the problems and prospects of modernization of the functioning of the monetary and credit system in the EU, it is important to research and scientifically substantiate the stabilization mechanisms for Ukraine. The article investigates some stabilization mechanisms that are Ukraine Facility and Multi-Agency Donor Coordination Platform. Funding by Ukraine Facility is analysed through its pillars, components and implementation of main conditions for receiving benefits on the way of Ukrainian economy recovery. MultiAgency Donor Coordination Platform for Ukraine, as innovative instrument for coordinating activities of its members, is researched on the base of its existing funding mechanisms: the G7 Finance Track, the G7+ Coordination Group on energy infrastructure and the International Financial Institutions (IFIs) Coordination Group.

Signaling virtue or vulnerability? The changing impact of EMU on government bond spreads

Abstract Do bond-spreads of developed countries behave differently under different exchange-rate regimes? Focusing on the experience of European monetary integration, we find that the impact of exchange-rate regimes on spreads depends on the macroeconomic context. When inflation counted as the greatest risk to bondholdings, Economic and Monetary Union (EMU) was advantaged over flexible and fixed exchange rates, because of its in-built inflation-control mechanisms. Since debt-sustainability became the primary risk, exchange-rate rigidity has been a liability because it constrains governments’ response to adverse shocks. Employing a moving-window analysis for 12 EMU-members plus 10 ‘comparators’, we find that inflation was penalized under flexible and fixed exchange-rate regimes, but not under EMU. From the early 2010s on, inflation carried no penalty under any exchange-rate regime. Debt and deficit did not affect spreads until the late 2000s. Since then, EMU-members incurred larger and more prolonged spreads penalties for deficits and debt than countries in other exchange-rate regimes.

Important Drivers of European Monetary Integration The Game Between the German Central Government and the Bundesbank as an Example

An independent central bank constitutes a veto actor in the political process itself and has the potential to limit the autonomy of the State (Government). In cases where the preferences of the state and the central bank diverge, the resulting authoritative actions will be influenced by the political structure of the respective country. Where changes in the domestic political system are difficult to achieve, the state can change the existing equilibrium between the central bank and the government by engaging in international regimes and international negotiations and evolving this equilibrium in the direction of greater state autonomy. This paper adopts a case study approach to propose a domestic political logic for international monetary policy choices by analyzing the relationship between international monetary co-operation, central bank independence and national autonomy, and uses the political game between the central central bank and the central government within Germany and the outcome to verify this view, thus providing a political science explanation for the relationship between German monetary politics and European monetary integration. The European Central Bank after the formation of the Union inherited the independence of the German central bank, and while assuming its responsibility for monetary stabilization and economic development, it gradually transcended the scope of its monetary functions and transformed itself from a purely technical institution to an important political player in the regional political and economic arena in the process of the already existing institutional constraints and changes in the economic situation.

RMB Internationalization

The internationalization of the renminbi (RMB) is viewed by some experts as a potential challenge to the US dollar's (USD) hegemonic status in the current global monetary system. This study employs a mixed theoretical framework to delve into the prospective evolution of China’s monetary influence. By applying the power transition theory to analyze the global monetary power structure, this study evaluates China’s dissatisfaction as a potential challenger against the dominance of the USD and examines the power parity between China and the United States. On a regional scale, the analysis focuses on possible Asian monetary integration of the RMB-domination by adopting the neofunctionalist paradigm derived from the European experience and juxtaposing this process with European monetary integration. The analysis shows that China has not been able to directly challenge the dominance of the USD, nor has it effectively spearheaded the agenda for regional monetary integration. More specifically, China’s export-oriented growth model has hindered the emergence of the RMB as a substantial competition to the USD within East and South Asia.

The monetary policy trilemma from the perspective of European integration

AbstractFollowing the breakdown of the Bretton Woods agreement the international monetary system has operated based on floating exchange rate arrangements and free capital mobility. A most significant subsequent improvement has been the process of European monetary integration, from the institution of the European Monetary System to the Euro currency. The relationships between the short‐term interest rates of European Union (EU) countries and the United States suggest, that in the post‐Bretton Woods period the US dollar has held an important anchor currency role, while EU countries acquired considerable monetary policy independence. Further, the stronger relationships between the short‐term interest rates of EU countries and Germany may be viewed as a consequence of monetary unification. The econometric evidence provides important insights for the period following the adoption of the Euro, when European economies have in many instances been subject to heterogeneous shocks.

The impact of European monetary integration on M&A volume in the context of the banking market consolidation

Over the last two decades, the banking sector in Europe has undergone significant changes in terms of regulations and market structure, which resulted in a significant increase in M&A transactions. The rise of M&A activity was also a consequence of fundamental changes in the external environment, such as introduction of the euro, technological progress and changing customer demand. The aim of this contribution is to compare the impact of the integration of the countries in the European Monetary Union on the volume (value) and number of realized M&A. The Mann-Whitney U test was used to verify three individual hypotheses. The results of the analysis did not confirm differences in the volume and number of M&As between EMU and non-EMU countries (with the exception of 2 years).

Growth models in Europe’s Eastern and Southern peripheries: between national and EU politics

ABSTRACT This paper analyses the political origins of diverse peripheral growth models in Europe, focusing on debt-based consumption-led growth model in Southern Europe and FDI-based export-led growth model in Central and Eastern Europe. Contrary to existing approaches that attribute this East-South divergence to their geographic position and systemic features of European monetary integration, the paper argues that these growth models stem from different national and EU-level policy responses to the challenge of core-periphery market integration. While the Southern states sought to protect domestic firms, allowing for, or even directly contributing to deindustrialisation in the face of competition with the European core economies, Central and East European states aimed to preserve their industrial legacy even at the expense of FDI-dependency. These policy responses were, in turn, shaped by distinct patterns of interaction and accommodation between segments of state elites and domestic economic groups, as well as by dramatically different EU strategies of governing integration. In contrast with society-centred perspectives on the politics of growth models, the paper highlights the autonomous role of the state as a key actor balancing between the demands and accommodation of domestic economic groups, and the constraints and opportunities created by regional institutions governing market integration.

Towards a constitutional theory of money: opening Europe’s money up to public discourse

AbstractStefan Eich’s The Currency of Politics reconstructs and contextualises the monetary understanding of some of the most renowned political thinkers in history. By contextualising each author’s conceptualisation (subjective perception) against their respective contemporary monetary frameworks (objective institutional dimension), Eich elaborates a narrative composed of cumulative layers leading to a double conclusion: that money is political at its core, and that current policies are actively de-politicizing money. These relevant findings are the point of departure of a reflection on the role that law, and constitutional theory in particular, must play in the configuration of Europe’s common currency to overcome some of the most acute difficulties the process of integration is currently experiencing. If the triad law, money and public discourse is supposed to articulate social life in the polity, European monetary integration has neutralised them by neglecting the relevance of one of their key features: civic reciprocity. Reactivating the three mechanisms of social integration requires an exercise of constitutional imagination able to integrate interdisciplinary knowledge about money within an institutional framework able to prevent the concentration of unlimited power in unaccountable institutions and to promote and fully exploit the democratic potential of money.

Is European monetary integration structurally neoliberal? The origins of the EMS and the 1977–1978 locomotive conflict

The idea that European monetary integration is inherently neoliberal in its very structure gained prominence after the Eurozone crisis and has had considerable impact. The implication is that the only alternative to disciplinary neoliberalism in Europe is an exodus from EU institutions. This article contributes to the testing of such arguments through an empirical analysis of the origins of the Eurozone in the formation of the EMS during the 1977–1978 Locomotive Conflict. It finds that the variety of construal in EMS design and contingencies in the politics of selection between such designs do not accord with structuralist arguments.

Interview of Jacques de Larosière: In search of a better world financial order

Jacques de Larosière (born 1929) played for more than half a century an influential role on the international monetary scene. He was Director of the French Treasury, Managing Director of the International Monetary Fund, Governor of the Banque de France and President of the European Bank for Reconstruction and Development (EBRD). In 2008, at the age of 79 years, he chaired the so-called De Larosière Committee which provided the blueprint for a fundamental reform of financial supervision in the European Union. Highlights of his career were the management of the Mexican debt crisis in the 1980s and his role in the process of economic and monetary integration in Europe, especially as a member of the Delors Committee. In his analyses he focuses on the "financialization" of our econ-omies and the ensuing problems with debt and asset price bubbles, for which the breakdown of the Bretton Woods system was an important cause. As part of a research program on collecting memories, this paper publishes the results of several interviews and discussions with him.

FRANCO-GERMAN COOPERATION AT THE EARLY STAGES OF EUROPEAN MONETARY INTEGRATION

The article examines the prerequisites for european monetary integration after the World War II, as well as the stages of the formation of the EU Economic and Monetary Union. The aim of the study is to identify the internal and external factors of european monetary integration, as well as the role of Franco-German cooperation in this process. As a result of the study, the author comes to the conclusion that the european monetary integration was facilitated by both external factors: the influence of the United States in the post-war recovery of destroyed european economy and financial system, as well as the collapse of the Bretton Woods system of fixed exchange rates; and internal: the successful economic integration of countries and the further desire to remove all barriers, including financial ones, to internal trade. Franco-German cooperation played a significant role in european monetary integration. The positions of the countries on the basic principles of the functioning of the euro zone differed: France defended the flexibility of the monetary union, and Germany, fearing to lose control over the stability of the economy, advocated the harmonization of the economic policies of states. Nevertheless, the countries were able to form a common position and to end the formation of the Economic and Monetary Union on time, introducing the euro.

Economic Sentiment and Aggregate Activity: A Tale of Two European Cycles*

AbstractDeparting from the mainstream literature on European monetary integration, we acknowledge the interdependence of economic sentiment synchronisation and business cycle co‐movements for 17 European countries and the euro area (EA). Building on national accounts and survey data, we find non‐negligible evidence that sentiment cycles are the driving force behind general economic cycle synchronization. We demonstrate that recent EA acquisitions have witnessed an intensification of cycle synchronization with the EA core after the introduction of a common currency, corroborating the beneficial effects of the Eurosystem. Our results show a certain degree of dependence on the business cycle. The synchronization of 17 examined countries vis‐à‐vis the EA is mostly of equal magnitude or even more intensive during recessions than in expansions. In other words, the common monetary policy of the European Central Bank (ECB) should be able to effectively act as a countercyclical tool when an individual economy is facing a recession.

Frankel and Rose’s Introduction to the Endogeneity of Optimality: A Model Limited to the European Monetary Experience

This article discusses Frankel and Rose’s (1997, 1998) introduction to endogeneity, which was the result of scrutinizing the optimal currency area (OCA) theory through the evaluative lens of European monetary integration and unification in the 1990s. It cannot be generalized to another monetary union. The development of endogeneity interrelates five different criteria (common currency; transaction costs; commercial integration; economic convergence; and diversification of production) to argue that the introduction of a common currency leads to economic convergence among the participating countries. Frankel and Rose’s choice of analytic criteria arises from empirical studies on European monetary unification, following the OCA framework. The empirical studies found to have influenced the authors can be divided into three themes: the microeconomic benefits of a common currency; the optimality of European countries; and adjustment mechanisms. However, as shown by the selection of certain criteria, the influence of the Emerson report (1990), and the price-stability orientation of fiscal and monetary policies, their proposal only works within the monetary and economic conditions of the future eurozone area.

The Role of Law in European Monetary Integration: A Critical Reconstruction and a Response to Klein

In an article recently published in this journal, Steven Klein revised Karl Polanyi’s conceptualization of the relation between economy and society, and adapted it to the post-crisis European context. Klein’s reconstruction emphasized the redemocratization potential of trade unions and central banks against the pernicious effects of the commodification of labor and money on the European level. While Klein’s approach is without doubt very insightful and original, we think that some of his claims either deserve discussion or require closer elaboration. This reservation concerns the conceptual approach of setting Polanyi against Habermas as well as the critique of the role of law in the integration process. As for the latter, we think that further contextualization is needed to appreciate changing historical contexts and layers of European integration. With the objective of enriching Klein’s analysis, we first propose a way to reconcile, against what Klein suggests, Polanyian and Habermasian understandings of law and money. This theoretical background will help us, second, to explore in detail the differences between market integration and monetary integration, and in particular the role that law plays in each of these politico-economic constellations. Based on this, we will, thirdly and finally, explain how the interaction of public and private law in the context of post-crisis European integration further promotes the process of commodification, and how the configuration of law in market and monetary integration currently prevents trade unions and central banks from exerting the redemocratizing potential that Klein assigns to them.

Niels Thygesen: An Academic in the Making of European Monetary Union

Niels Thygesen (born 1934) played for nearly five decades an influential role as a policy orientated academic, especially in the process of economic and monetary integration in Europe. He is especially known as a member of the Delors Committee and as the first Chair of the European Fiscal Board. As part of a re-search program on collecting memories, this paper publishes the results of several interviews with him. His early life offers insightful observations on the develop-ment of the economics profession in the postwar years (he was close to Nobel Prize laureates as Franco Modigliani and Milton Friedman). Thygesen's involvement with the process of European monetary integration really started in 1974 with his membership of the Marjolin Committee (which provided an assessment of the failure of the 1970 Werner Report). Since then he has been involved in a multitude of committees and initiatives, like the OPTICA groups, the All Saints Day Manifes-to, the Committee for Monetary Union in Europe (an initiative of Giscard and Schmidt) and the Euro50 Group.

The Politics of Labour that Underlies European Monetary Integration

AbstractThe dominant literature on the development of the EU's new economic governance regime suggests that it constitutes another step towards integration in the European fiscal policy framework. However, I argue that this limited view neglects the politics of labour that underlies European monetary integration. In the euro area competitiveness adjustment is promoted, which means in practice fostering and facilitating the confrontation of workers by employers in order to keep unit labour costs down. The new economic governance reforms consistently reinforced this policy‐making logic. Its central innovation was the systematization and 'hardening' of the macroeconomic surveillance framework beyond fiscal policy, which created new competences at the EU level to intervene in national labour market policies, including wages. This is what is actually new about the new economic governance; marking a recent key moment in European monetary integration and reinforcing the politics of labour underlying it.

Perspektywy przystąpienia Polski do strefy euro w kontekście teorii optymalnych obszarów walutowych oraz kryteriów konwergencji

Objective: The aim of the study is to determine the benefits and threats of introducing the euro in Poland in the context of the theory of optimal currency areas and convergence criteria.Research Design & Methods: A critical analysis of the literature on the subject, both Polish and foreign, as well as statistical analysis based on data from the World Bank, The European Commission, the Polish Central Statistical Office, the Eurostat and TradingEconomics.com were used.Findings: Currently, the euro area does not meet the theory OCA assumptions, and Poland does not meet the convergence criteria. Therefore, Poland cannot join the euro area. Moreover, joining the European Monetary Union may open the door to more threats than benefits.Implications / Recommendations: Poland, as a country with a derogation, is obliged to meet the convergence criteria and join the euro area, but it is not ready at present. However, Poland and the euro area together could eventually create an optimal currency area.Contribution: The results contribute to the debate on European monetary integration and the prospects for the introduction of the euro in Poland and may constitute a basis for further research.

Кризис бреттон-вудской валютной системы и начало европейского валютного сотрудничества

The article aims to identify the impact of the crisis of the Bretton Woods monetary system on the beginning of European monetary cooperation. Russian scholars' publications on European monetary integration usually examine in detail the internal prerequisites for the emergence of the Werner Plan and only sketch the external environment. Drawing on available European and American sources, this research provides a more nuanced picture of the origins of European monetary cooperation in the context of a general collapse of the post-war international monetary order. The article begins with the characteristic of the main features of the Bretton Woods monetary system. In the late 1960s and early 1970s, the intrinsic contradictions of the Bretton Woods mechanism, such as the problem of liquidity, confidence in the key currencies, and the adjustment mechanism, generated numerous monetary crises. All efforts to reform the international monetary system stalled because of disagreements between countries with surplus and deficit payment balances. The research also focuses on the US monetary policy. As the US dollar was the main reserve currency, the stability of the entire monetary system depended on its position. Since the late 1960s, conflicts over monetary issues developed between the United States and Western European countries, culminating in the Nixon administration's unilateral decision to abolish the gold standard in August 1971. Monetary crises and the weakness of the dollar pushed the countries of the European Economic Community to develop their own currency grouping. The article analyses the Werner Plan of 1970 that proposed the creation of an Economic and Monetary Union (EMU) with a single European currency as the ultimate goal. Based on fixed exchange rates between European currencies, the EMU represented a regional replica of the Bretton Woods system. The single European currency was seen by Europeans as an alternative to the dollar and the unpredictable American policy. The author concludes that the end of transatlantic monetary cooperation gave an additional impetus to the development of European monetary integration. Although first European efforts to create the EMU had failed because of the different approaches of France and the Federal Republic of Germany as well as the economic crisis of the early 1970s, the Werner Plan marked a crucial phase in the history of European integration. The Werner Report became a blueprint for the European Monetary System (EMS) of the late 1970s. The success of the EMS paved the way for the creation of the European Monetary Union envisaged in the Maastricht Treaty of 1991 establishing the European Union and the adoption of a single European currency - the euro.

European monetary integration, TFP and productivity convergence

I explore if the creation of the Economic and Monetary Union affected productivity performance of its member countries. Synthetic control and difference in differences econometric estimates show that following the introduction of the euro TFP improved and productivity gaps against the U.S. narrowed.

Putting European Monetary Integration into a Historical Perspective: Two Decades of the European Monetary System versus Two Decades of the European Monetary Union

Abstract This comparative study looks at broad economic developments during the 20 years of the European Monetary Union (EMU) and 20 years of the European Monetary System (EMS). We analyze the economic performance by looking at a set of macroeconomic variables. The analysis of macroeconomic performance includes two perspectives: one is internal, i. e. how did the countries perform relative to each other; the other is external, i. e. how did the group of member countries perform vis-à-vis other countries. Overall, the analysis of the two periods suggest that the EMU does not display a macroeconomic development inferior to the EMS period. On the contrary, some crucial macroeconomic indicators point to a greater stability during the EMU period compared to the EMS period.