The ECB and Economic Integration
(2022) The New European Central Bank: Taking Stock and Looking Ahead — ISBN: [9780198871231], p. 136-155, published
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- Authors
Bauerschmidt, Jonathan 
- Abstract
- The euro lives on conditions which it cannot guarantee itself. This was already clear to economists such as Milton Friedman when the Economic and Monetary Union was established. He voiced concern regarding the feasibility of a monetary union without a political union: ‘It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues. Political unity can pave the way for monetary unity. Monetary unity imposed under unfavourable conditions will prove a barrier to the achievement of political unity.’ Thus, Friedman predicted that monetary union would lead to political disunity. His prediction was tested during the Great Financial Crisis which started with the collapse of Lehman Brothers in 2008 and then developed into a sovereign debt crisis in the European Union in 2009.
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Citations
Bauerschmidt, J. (2022). The ECB and Economic Integration. In Thomas Beukers; Diane Fromage; Giorgio Monti (eds.) (ed.), The New European Central Bank: Taking Stock and Looking Ahead (p. p. 136-155). Oxford University Press.