The Euro at a Crossroads

A monetary union is a hybrid between a fixed exchange rate system and a unitary state, one that is fully captured neither with closed-economy macro models nor classical international macro models of fixed exchange rates. The main general lesson from the Eurozone crisis is that a monetary union is viable only among similar countries with a willingness to integrate their economic systems—or at least among countries wishing to become similar over a clearly defined time-horizon. There would have been no euro crisis, for example, if the initial membership had been confined to Germany, France, Benelux, and Finland.

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