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The Eurozone as a Flawed Currency Area

Authors

  • MARK BAIMBRIDGE,

    1. Senior Lecturer in Economics in the Division of Economics at the University of Bradford.
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  • BRIAN BURKITT,

    1. Honorary Senior Research Fellow in the School of Social and International Studies at the University of Bradford.
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  • PHILIP B. WHYMAN

    1. Professor of Economics in the Lancashire Business School at the University of Central Lancashire.
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    • Correction added online on 12 February 2012 after first publication on 6 February 2012. Authorship of this article should have been attributed to Mark Baimbridge, Brian Burkitt and Philip B. Whyman but was erroneously attributed solely to Mark Baimbridge. This error has been corrected in this version of the article and also in the printed issue.


Abstract

The European single currency system has come under unprecedented strain during the past three years and there is little reason to assume that this will diminish, in any significant way, in the near future. This article briefly explores the background to the current eurozone crisis before outlining a number of potential solutions. Specifically, we discuss how the credit crunch induced recession of 2008 triggered the problems within the eurozone regarding sovereign debt, looking at the issues of spill-over and free-rider effects, together with the implementation of EMU fiscal rules. The analysis is then extended by outlining a series of potential remedies. This consists of a critical evaluation of solutions that the EU has already instigated (i.e. moral persuasion, financial relief measures and debt default), together with a series of alternative propositions (i.e. fiscal federalism and a European Clearing Union) and even the collapse of the euro.

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