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Chapter 21 (10)
Optimum Currency Areas
and the Euro
◼ Chapter Organization
How the European Single Currency Evolved
What Has Driven European Monetary Cooperation?
The European Monetary System, 1979–1998
Germany Monetary Dominance and the Credibility Theory of the EMS
Market Integration Initiatives
European Economic and Monetary Union
The Euro and Economic Policy in the Euro Zone
The Maastricht Convergence Criteria and the Stability and Growth Pact
The European Central Bank and the Eurosystem
The Revised Exchange Rate Mechanism
The Theory of Optimum Currency Areas
Economic Integration and the Benefits of a Fixed Exchange Rate Area: The GG Schedule
Economic Integration and the Costs of a Fixed Exchange Rate Area: The LL Schedule
The Decision to Join a Currency Area: Putting the GG and LL Schedules Together
What Is an Optimum Currency Area?
Other Important Considerations
Case Study: Is Europe an Optimum Currency Area?
The Euro Crisis and the Future of EMU
Origins of the Crisis
Self-Fulfilling Government Default and the “Doom Loop”
A Broader Crisis and Policy Responses
ECB Outright Monetary Transactions
The Future of EMU
Summary
