2017: Emmanuel Macron is elected president in France under waving EU flags. Soon after, Martin Schulz, former president of the European Parliament, takes the helm at the German social democratic party. Under the influence of these Europhiles, there were soon propositions put forward to reform the euro area.
These initiatives included:
- Proper euro area investment budget to counter negative economic shocks
- Full banking union to promote cross-border lending and investments
- European Monetary Fund to lend in times of distress
- Revised fiscal rules to allow for less austerity and more flexibility for each country
The euro zone has several weaknesses that were exposed during the euro crisis and the Greek crisis. But could these new political initiatives finally turn the euro zone into a well-functioning monetary union?
In this mini-case, you will go through Mundell's criteria for an optimal currency area, then look at corresponding data. You will get a better understanding of the theory as well as the current debate on fiscal transfers and risk sharing. Maybe you will read the news with new eyes after this?
Have a try! Don't hesitate to ask questions, leave comments or simply suggest other related cases we could build to help you go even deeper into the economic stakes of the Euro zone!
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