Stateless Euro: The Euro Crisis and the Revenge of the Chartalist Theory of Money

Abstract

This article argues that contemporary optimum currency area (OCA) theory is limited in its capacity to understand the euro crisis because it emanates from the commodity-exchange theory of money and therefore under-estimates the necessity of a (sovereign) political authority to underpin any given monetary space. An alternative conception of money, based on the chartalist approach, is more useful for grasping the fundamental weaknesses in European monetary union (EMU). Overall, the argument is that EMU will remain a fragile edifice as long as the eurozone does not create a centralized and legitimate political authority capable of taxing eurozone citizens at the European level. In order for this to be achieved, France and Germany need to resolve the 'game of chicken' in which they are entangled and strengthen their co-operative efforts towards creating a European sovereign.

Specialization, Risk Sharing and the Euro

“…On the other hand, the difficulty of co‐ordinating euro area wide fiscal and monetary policies in order to effectively comply with the mandate of guaranteeing price and financial stability (Sims, ). Political science has also emphasized the need for a central fiscal authority in the euro area, taking an even more extreme position than economists to assert that in the long run a single monetary space cannot exist without a single political sovereign (Otero‐Iglesias, ). At a level closer to the political praxis, political science has also highlighted the important influence of politics in the euro adoption decisions of EU members (Dandashly and Verdun, ).…”

Political Science and the Eurozone Crisis. A Review of Scientific Journal Articles 2004–15

“…The EFSF plays a role in studies of national parliaments (Closa and Maatsch, ; Maatsch, ). Other articles discuss the rescue mechanisms as part of a more comprehensive account of the crisis (Eichengreen, ) and the eurozone's institutional evolution 2007–11 (Salines et al, ) and address the question if any ‘lender of last resort’‐function can be properly exercised as long as the EU does not possess a functioning statehood (Otero‐Iglesias, ). The article by Buiter and Rahbari (, p. 21ff) argues that the rescue mechanisms are a form of – useful yet insufficient – self‐insurance and that it was in fact the ECB that has acted as a lender of last resort in the crisis.…”

Financialization of government debt? European government debt management approaches 1980–2007

“…The societal and political consequences of growing public debt are at the core of an emerging research strand on the financialization of public policy in Europe (see, among others, Howarth and Quaglia, 2013; Otero-Iglesias, 2015). Studies about emerging economies indicate that government debt can be managed in different ways and that the approach determines the extent to which a government is forced to accept the conditions of the investors (among others Haggard and Maxfield, 1996).…”