The Future of the Euro

In 2012, the ECB faced down a mortal threat to the euro: fears of redenomination (the re-introduction of domestic currencies) were feeding a run away from banks in the geographic periphery of the euro area and into German banks. Since President Mario Draghi spoke in London that July, the ECB has done things that once seemed unimaginable, helping to support the euro and secure price stability.

So far, it has been enough. But can the ECB really do “whatever it takes”? Ultimately, monetary stability requires political support. Without fiscal cooperation, no central bank can maintain the value of its currency. In a monetary union, stability also requires a modicum of cooperation among governments.

Recent developments in France have revived concerns about redenomination risk and the future of the euro....

Steve Cecchetti and Kim SchoenholtzFebruary 13, 2017Euro area, EMU, OMT, LTRO, Political union, Monetary union, ECB, French election, Sovereign risk, Sovereign yield spread, Target2, Financial crisis, Bank runs, European Union, Credit rating, Sovereign default

The Importance of Being Europe

If Oscar Wilde were still around, he could write a wonderful comedy about European Economic and Monetary Union (EMU). Like the life of his protagonist, Ernest John, the evolution of EMU is rarely pure and never simple. But it would take a Wilde imagination to see exactly how EMU gets to a happy ending.

Despite its name, EMU was not and is not primarily an economic endeavor...

Steve Cecchetti and Kim SchoenholtzOctober 27, 2014EMU, EU, ECB, OMT, Maastricht Treaty, Euro, Monetary union, Political union, Fiscal union, Banking union, Doom loop, Fiscal conditionality

Commentary

Money, Banking, and Financial Markets