Crisis cycle and the challenges to the Euro

 

The Euro experiment is not finished and may never be finished. The new book Crisis Cycle: Challenges, Evolution, and the Future of the Euro paints a bleak picture for the monetary union unless there is a fiscal union. This is not a new story, but the authors provide great detail on the problems with centrally run monetary policy and country-level fiscal policy. This is especially problematic when regulating and managing banks. There is also the issue of managing monetary policy, with country central banks still controlling bank regulation. Monetary policy has to engage with complex policies to address the fact that there is no centralized Euro debt like Treasuries. The Euro survived the post-GFC debt crisis, but the system is not really prepared for another sovereign debt crisis or debt default. While a default is highly unlikely, there is no clear policy path for addressing this type of problem.

The book provides a detailed analysis of the ECB's monetary policy and the problems of fiscal decentralization. Many will not have time to do this deep dive, but there is significant information to be gleened from this study.