The global financial system is now undergoing considerable instability, raising critical issues about the durability of reserve currencies. This article examines the probability of the euro surpassing the United States dollar as the predominant reserve currency, particularly in the context of heightened economic volatility and the emergence of new rivals, such as the Chinese yuan, striving for more significance in the global market. This paper specifically examines the possibility of the euro surpassing the United States dollar. This article employs a mixed-methods approach to evaluate the competitiveness, credibility, and limitations of predominant reserve currencies. It does this by integrating actual reserve data from the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) with theoretical concepts derived from dominant stability theory, network effects, and institutional trust. The data indicate that the dollar's supremacy has been progressively declining, from over 70% of global reserves in 2000 to around 58% by mid-2024. Robust legal frameworks, monetary credibility, and comprehensive financial markets collectively enhance the prosperity of the euro, which constitutes almost twenty. (20%) percent of the total. The Eurozone, meanwhile, persists in facing challenges such as the lack of a fiscal union and the disunity of political leadership within the bloc. The Chinese yuan accounts for only four (4%) percent of world foreign currency reserves, notwithstanding programs like the Belt and Road and enhanced central bank swap lines promoting its utilization. China's persistent objective of sustaining a depreciated yuan to bolster its international economic competitiveness presents a considerable obstacle. Because the yuan cannot be converted into other currencies and there is uncertainty over its value over the long term, foreign central banks are unable to maintain considerable reserves of the yuan. The continued existence of concerns over capital restrictions, decreased financial transparency, and political participation has led to widespread pessimism regarding the Yuan’s potential to continue functioning as a reserve currency despite these factors. Based on what the study found, it seems unlikely that there will ever be a single currency that is the most important one in the world. This suggests that there is a multipolar system in which the euro, the yuan, and digital currencies like the e-CNY and the digital euro all function together in a framework for international monetary policy that is becoming more decentralized and strategically split. These changes have big effects that might change not just how the world is run but also the trade strategy and macroeconomic policy that are already in place. These changes also make life harder for civilizations that are in other regions of the planet.

The global financial system is now undergoing considerable instability, raising critical issues about the durability of reserve currencies. This research examines the probability of the euro surpassing the United States dollar as the predominant reserve currency, particularly in the context of heightened economic volatility and the emergence of new rivals, such as the Chinese yuan, striving for more significance in the global market. The research specifically examines the possibility of the euro surpassing the United States dollar. This research employs a mixed-methods approach to evaluate the competitiveness, credibility, and limitations of predominant reserve currencies. It does this by integrating actual reserve data from the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) with theoretical concepts derived from dominant stability theory, network effects, and institutional trust. The data indicates that the dollar's supremacy has been progressively declining, from over 70% of global reserves in 2000 to around 58% by mid-2024. Robust legal frameworks, monetary credibility, and comprehensive financial markets collectively enhance the prosperity of the euro, which constitutes almost twenty. (20%,) percent of the total. The Eurozone, meanwhile, persists in facing challenges such as the lack of a fiscal union and the disunity of political leadership within the bloc. The Chinese yuan accounts for only four (4%) percent of world foreign currency reserves, notwithstanding programs like the Belt and Road and enhanced central bank swap lines promoting its utilization. China's persistent objective of sustaining a depreciated yuan to bolster its international economic competitiveness presents a considerable obstacle. Because the yuan cannot be converted into other currencies and there is uncertainty over its value over the long term, foreign central banks are unable to maintain considerable reserves of the yuan. The continued existence of concerns over capital restrictions, decreased financial transparency, and political participation has led to widespread pessimism regarding the yuan's potential to continue functioning as a reserve currency despite these factors. Based on what the study found, it seems unlikely that there will ever be a single currency that is the most important one in the world. This suggests that there is a multipolar system in which the euro, the yuan, and digital currencies like the e-CNY and the digital euro all function together in a framework for international monetary policy that is becoming more decentralized and strategically split. These changes have big effects that might change not just how the world is run, but also the trade strategy and macroeconomic policy that are already in place. These changes also make life harder for civilizations that are in other regions of the planet.

Eurozone membership entails ceding national monetary authority to the European Central Bank (ECB) and accepting supranational fiscal rules (e.g. the Maastricht criteria, Stability and Growth Pact (SGP), and Fiscal Compact). This paper examines how these arrangements have constrained member states’ economic sovereignty since the 2008 crisis. Method: Using a comparative case study of four Eurozone countries (Greece, Italy, Germany, France), we analyse official data and policy developments from 2008 onward. Theoretical lenses include the economic policy “trilemma” (impossible trinity), economic interdependence, and neofunctionalist spillover. Results: We find that Euro membership has systematically curtailed unilateral monetary policy (no devaluation, uniform ECB rates) and imposed tight fiscal limits (3% deficit, 60% debt). During the sovereign‐debt crisis, bailout conditionality and ECB interventions (e.g. OMT, QE) further eroded autonomy. Sovereignty was shared or pooled in many areas of economic policy (e.g. coordinated budget review, banking supervision). However, differences emerged: Germany and France enjoyed policy space earlier on, while Greece and Italy bore stricter external control (Troika programmes, market pressure) and deeper recessions. Conclusions: Eurozone membership has unquestionably limited national fiscal and monetary discretion, validating concerns about constrained sovereignty. Yet institutions have adapted (strengthened fiscal governance, banking union) and there are proposals for further reforms (fiscal union, central stabilization funds) to reconcile stability with democratic control. Within the existing Euro-area framework, states strive for adaptive strategies (structural reforms, fiscal buffers, and coordinated policy) to mitigate sovereignty loss.

This paper aims to bring Romanian research on public debt into the international spotlight, contextualizing it within the rising global debt levels caused by recent economic crises, such as the global financial crisis and the Covid-19 pandemic. The main goal is to highlight the importance of local research, often overlooked, while analyzing public debt through both global and local lenses. The first part of the paper analyzes the intensifying effects of globalization, accelerated by the Covid-19 pandemic, and the shift in how public debt is perceived, with a growing focus on investments and budget deficits. It also examines the challenges faced by decision-makers in managing debt sustainability, particularly the tension between political priorities and fiscal realities. The second part provides an empirical analysis of recent studies on the rise of global public debt, political economy factors, and credit cycles. The third section outlines the difficulties in governing public debt in the European Union due to the absence of a fiscal union and explores the concept of an optimal monetary zone. One of the central political issues raised is the tendency of politicians, especially in advanced economies, to exploit public debt for short-term electoral gains.

Objective: The objective of the article is to investigate the suitability of the European Union (EU) convergence criteria as an evaluative instrument in assessing its progression from the monetary union (MU) to the fiscal union (FU). The secondary aim was to propose a list of ‘fiscal confluence criteria’ as a foundation for evaluating member states’ ability to adhere to the fiscal union. Research Design & Methods: A quantitative research methodology was employed, using eight indicators and three distinct methods (Euclidean distance, standardized sums, Technique for Order Preference and Similarity to Ideal Solution) to create a joint development measure, known as the core measure, for each group: CMMU and CMFU. I employed Spearman’s ρ to calculate the rank correlation between Monetary and fiscal union. The research sample comprised all 27 European Union member states (EU MS). I sourced the datasets from reputable databases, namely Eurostat, the International Monetary Fund (IMF), the World Bank (WB), and Accounting for Transparency (AFT). Findings: The integrity level of the EU member states falls notably below the established thresholds. There are significant discrepancies between the countries. Consequently, the possibility of the EU attaining the next level of integration (FU) in the foreseeable future is limited. Implications & Recommendations: Given the obvious limitations on the ability of EU member states to pursue further integration in the immediate future, policymakers, and business entities within the EU should prioritize maintaining the agreement in its current form (Economic and monetary union). Further research should immediately concentrate on the causes and remedies of rising Euroscepticism in EU MS. Contribution & Value Added: This research offers valuable insights into the potential for further integration within the EU. Moreover, it initiates a discourse on the formulation of new criteria for the next level of integration (fiscal union).

The political economy of currency unions

The present article aims to expose current trends in fiscal integration in the EU. Its milestones are brought forward, with particular attention being paid to the “NextGenerationEU” recovery plan, the latter constituting Brussels' key response to the socio-economic crisis caused by the COVID-19 pandemic. The article evaluates whether this program is going to remain a temporary phenomenon and to what extent it can define the “new normal” for the Economic and Monetary Union. Due to the Ukrainian crisis, the suggestions are spelled out more insistently to provide Brussels with “fiscal capacity” or permanent fiscal mechanisms that could repel emerging challenges and threats. The question that is considered here is whether we can expect such perpetual tools to become future elements of a full-scale fiscal union, bringing the euro area closer to the contours of an optimum currency area. The influence of European institutions as initiators of the integration process and the involvement of non-governmental players in it have received wider coverage in the specialized literature. Thus, in this case the role played in the process of fiscal integration by national governments is explored in more detail. For this purpose, the theory of multilevel governance and, in particular, its “dynamic” version are applied. It proves useful for identifying cases and ways in which governments can maintain control over decisions made within the integration system. The analysis confirmed that the Union has no plans to increase the issuance of the EU debt in order to replace national borrowing, or to transfer taxes from the national to the supranational level. It can be expected that in the future more active EU borrowing in financial markets will be accompanied by the measure of institutional flexibility which has now been achieved due to an intergovernmental compromise. At the same time temporary tools like NGEU and SURE are unlikely to lead to the fiscal union being completely federalized.

The responsibility of the euro member states for their respective independent economic and fiscal policies leads to heterogeneity in the economic fundamentals of the euro member states, which has an impact on the risk premiums for government bonds, among other things. This heterogeneity poses a challenge for a standardized monetary policy of the European Central Bank in the eurozone, especially but not only in times of crisis. The establishment of a monetary union without a corresponding economic and fiscal union has been described as a design flaw of the euro. The article uses key examples to analyse the monetary policy mechanisms for dealing with this heterogeneity. On this basis, the article argues in favour of developing overarching normative criteria for correcting the market valuation of government bonds.

Is a fiscal union optimal for a monetary union?

Abstract This paper uses a tractable game theory model to study the interactions of structural reforms and fiscal and monetary policies in the European Monetary Union (EMU). Considering the externalities that arise when interest rates have hit the lower bound and monetary policy is carried out through quantitative easing (QE), we show that the subgame perfect equilibrium is suboptimal when structural reforms and fiscal policy are implemented at a national level. Then, we prove that the optimal outcome cannot be obtained if structural reforms are dictated by a supranational institution. By contrast, we establish that the first best can be obtained either by a full‐fledged fiscal union or a rule on QE. Given the practical difficulties that the first of these two solutions have encountered in the EMU, a rule over QE provides a clear, easier and more credible way to make structural reforms and fiscal deficits achieve the levels that maximise the union's welfare.

Abstract Fiscal multipliers have been a core issue for the effectiveness of fiscal policy. During the financial economic crisis of 2007–8 there has been a revival of interest in re-estimating the size of the multipliers. Empirical literature showed that fiscal multipliers are dependent either on structural characteristics of the economy (exchange rate regime, openness, etc.), or on business cycles or on fiscal characteristics (level of debt, the choice between expenditures and taxes, etc.) of the economies. The aim of this paper is to contribute to this discussion by developing a VAR model to compute the effects of fiscal policy to output for the 19 member states of EMU for the period 2002-2019. Controlling for size of the countries, level of Debt to GDP ratio and openness. Based on these findings we will discuss the difficulties of fiscal consolidation in EMU economies. We argue that EMU is facing a deadlock, the necessity of fiscal consolidation on the one hand and the unavoidable risk of uneven results of fiscal contraction in the member states due to different size of multipliers on the other hand. The only alternative for EMU is to take a step forward towards a fiscal union. In this case fiscal policy should be balance different political priorities and preferences and at the same time be timely and effective. JEL classification numbers: F35, O53. Keywords: Fiscal policy, European Monetary Union, debt, Fiscal cooperation, Fiscal multipliers.

Abstract Fiscal multipliers have been a core issue for the effectiveness of fiscal policy. During the financial economic crisis of 2007–8 there has been a revival of interest in re-estimating the size of the multipliers. Empirical literature showed that fiscal multipliers are dependent either on structural characteristics of the economy (exchange rate regime, openness, etc.), or on business cycles or on fiscal characteristics (level of debt, the choice between expenditures and taxes, etc.) of the economies. The aim of this paper is to contribute to this discussion by developing a VAR model to compute the effects of fiscal policy to output for the 19 member states of EMU for the period 2002-2019. Controlling for size of the countries, level of Debt to GDP ratio and openness. Based on these findings we will discuss the difficulties of fiscal consolidation in EMU economies. We argue that EMU is facing a deadlock, the necessity of fiscal consolidation on the one hand and the unavoidable risk of uneven results of fiscal contraction in the member states due to different size of multipliers on the other hand. The only alternative for EMU is to take a step forward towards a fiscal union. In this case fiscal policy should be balance different political priorities and preferences and at the same time be timely and effective. JEL classification numbers: F35, O53. Keywords: Fiscal policy, European Monetary Union, debt, Fiscal cooperation, Fiscal multipliers.

Government debt deleveraging in the EMU

In this paper we analyze dynamic interactions in a monetary union with three fiscal players (the governments of the countries concerned) and a common central bank in the presence of exogenous shocks. The model is calibrated for the euro area and includes a fiscally more solid core block denoted as country 1 as well as a fiscally less solid periphery block represented by countries 2 and 3. Introducing two periphery countries allows us to capture different attitudes of the periphery countries towards the goal of sustainable fiscal performance. Moreover, different coalition scenarios are modelled in this study including a fiscal union, a coalition of periphery countries and a coalition of fiscal-stability oriented countries. The exogenous shocks are calibrated in such a way as to describe the last major crises in the euro area, namely the financial crisis, the European sovereign debt crisis, the Covid-19 crisis, and the Ukraine war (energy price) crisis. Using the OPTGAME algorithm we calculate a cooperative Pareto and non-cooperative feedback Nash equilibrium solutions for the modelled scenarios. The fully cooperative solution yields the best results. The different non-cooperative scenarios allow insights into the underlying trade-off between economic growth, price stability and fiscal stability.

State government saving over the business cycle

Abstract The article examines the legal structure and constitutional consequences of ‘Next Generation EU’ (NGEU)—the innovative recovery fund that the European Union (EU) established to address the socio-economic consequences of the COVID-19 pandemic. The article sheds light on the complex normative constellation that was used to erect NGEU, and explains how this was satisfactorily done within the existing Treaty framework, by resorting to current legal bases. At the same time, however, the article underlines the profound constitutional consequences that NGEU has on the EU's architecture of economic governance. To this end, the article contrasts the strategy chosen to respond to the COVID-19 pandemic to that embraced to tackle the euro-crisis a decade ago, and concludes emphasising how NGEU significantly contributes to the federalisation of the EU, endowing its fiscal union with a fiscal capacity analogous to that of other federal regimes.

Using data from a unique survey of members of parliaments in France, Germany and Italy in 2018, we estimate the effects of three dimensions on EU and Euro Area fiscal reform preferences: nationality, political ideology and populism. We predict and confirm that a German populist party on the right is most opposed to a more developed European fiscal union, while a non-populist politician on the political left in France or Italy is most integrationist. Furthermore, the relative position of French and Italian policymakers is issue dependent and the left dimension outweighs the German dimension in two out of seven reform issues. Finally, populism intensifies the polarizing impact of national interests.

The euro crisis has significantly influenced Europe's progress, but many experts continue to doubt the European Monetary Union's long-term viability. Those without independent monetary policy will be unable to support their economies through currency devaluation if an economic crisis occurs. Countries that are not experiencing a situation would also be affected. Overall, the EMU benefits individual countries while also benefiting the entire EU. Each nation has distinct benefits from utilizing the euro, notably during the financial crisis. A monetary union without a fiscal union would be a catastrophe, but a severe enough problem would motivate European countries to move closer together. The European Central Bank has also implemented a massive bond-buying program to keep borrowing rates low. The eurozone has been able to respond to the consequences of the coronavirus outbreak reasonably rapidly. The research conclusion of this paper indicates that during the euro's implementation, countries' cooperation and development should be bolstered, the issue of benefit-sharing should be thoroughly investigated, an exchange and cooperation mechanism between countries should be established under the unified currency system, and a community of interests should be established.

The euro crisis has significantly influenced Europe's progress, but many experts continue to doubt the European Monetary Union's long-term viability. Those without independent monetary policy will be unable to support their economies through currency devaluation if an economic crisis occurs. Countries that are not experiencing a situation would also be affected. Overall, the EMU benefits individual countries while also benefiting the entire EU. Each nation has distinct benefits from utilizing the euro, notably during the financial crisis. A monetary union without a fiscal union would be a catastrophe, but a severe enough problem would motivate European countries to move closer together. The European Central Bank has also implemented a massive bond-buying program to keep borrowing rates low. The eurozone has been able to respond to the consequences of the coronavirus outbreak reasonably rapidly. The research conclusion of this paper indicates that during the euro's implementation, countries' cooperation and development should be bolstered, the issue of benefit-sharing should be thoroughly investigated, an exchange and cooperation mechanism between countries should be established under the unified currency system, and a community of interests should be established.

Abstract Central bank independence has been championed on the grounds that it avoids political business cycles, the time-inconsistency problem of discretionary monetary policy, and political conflicts. However, after the financial crisis, central banks have resorted to unconventional monetary policies and embraced additional tasks, making monetary authorities more exposed to political interference. This new reality has put into question the long-lasting consensus on the desirability of central bank independence. We add to this debate a new argument in support of that independence, namely, it internalizes the fiscal spillovers that arise in a monetary union, which is not a full fiscal union.