Stuck on the wrong track: 20 years of euro disillusion, denial, and delusion

Abstract

This contribution assesses the functioning of Europe's Economic and Monetary Union (EMU) during the first 20 years of the euro's existence. It argues that two formative intellectual currents converged at Maastricht to shape the design and reception of the euro regime: ordoliberalism and neoliberalism. Germany's ordoliberalism inspired and shaped the euro regime design. Neoliberalism fashioned the reception of what was agreed at Maastricht under the influence of Bundesbank dogma and power. As a product of the zeitgeist, Europe got stuck with a deeply flawed euro regime. The Maastricht Treaty institutionalized an asymmetric (growth-unfriendly) policy regime. This suited the macroeconomic mainstream well, fighting the ‘1970s stagflation war’ for the past 40 years. Twenty years of euro disillusion have produced the exact opposite: ‘stagdeflation.’