Is the Eurozone an Optimum Currency Area?

Abstract

The objective of this paper is to find out the past, the present and the future of the euro. The first part presents the euro as an edifying currency experiment. The second part analyses the economic performance of the euro area. The third part points out the internal conflicts inside the eurozone. The fourth part explains why the eurozone is not an optimum currency area. The fifth part outlines the controversy around the purchase of bonds by the ECB. The sixth part poses the question whether it is still possible to save the euro. The eurozone is not an optimum currency area. In theory, it could become one, provided that high mobility of labour is achieved, wages are flexible downwards, asymmetrical shocks do not occur and there is a stable system of national finances, supplemented by an effective system of fiscal compensations. Since these conditions are not met, the euro has become a trap for the member states. The euro has not had the effect of converging economic development in the eurozone; quite the opposite, it has had a diverging effect.