Economic and Monetary Union

A construção da moeda única apresenta falhas ao nível dos mecanismos que deveriam garantir a convergência macroeconómica entre os países membros da União Europeia. Menos conhecidas e analisadas são as falhas na construção política, ou seja, na estrutura de gestão e tomada de decisões: uma estrutura cujo sistema de incentivos faz para que não exista um interesse comum na estabilização dos desequilíbrios macroeconómicos entre os Estados-membros, e que por isso põe em risco a estabilidade a médio prazo da zona euro. Duas são as possíveis soluções ao nível da estrutura política: uma "união política", isto é, uma maior integração que inclua mecanismos supranacionais de legitimidade democrática, ou uma diferente estrutura de regras no contexto da governança atual, que crie um interesse comum na estabilização da moeda única. O artigo expõe estas duas opções, analisa as propostas da Comissão perante estas duas perspetivas, e avalia os obstáculos no caminho das reformas de um ponto de vista das preferências dos governos dos mais influentes países membros..pt † A pesquisa que está na base do presente artigo foi financiada pela FCT-Fundação para a Ciência e a Tecnologia (UID/FIL/00183/2013).

The fiscal architecture of the common currency was flawed in several respects from the very start. Less well known are the flaws in the political architecture of the Economic and Monetary Union. This is characterised by a system of incentives that thwarts all efforts towards an overall macroeconomic stabilisation of the Eurozone. There are two possible solutions to this problem: one is the political union, to be brought about by means of an additional transfer of economic and fiscal sovereignty and a corresponding mechanism of political legitimacy, or different fiscal rules within the current structure of political governance. The essay expounds upon these two options while taking into account the European Commission's most recent reform proposals. It furthermore assesses the hurdles that the latter will have to overcome against the background of the preferences of the most influential Member States.

Currency regimes and their effects have been studied widely in both developed and developing countries. This study discusses what European monetary unification is telling about the interpretation of the optimum currency area (OCA) in the framework of classical contributions to the literature. The study concludes that although several weaknesses of the analytical framework of the early OCA theory have been modified and some of the OCA properties have technically sophisticated, there is no unified theory in this area. The experiment of Europe with economic and monetary union intensify this conviction. Moreover, it concludes that a single currency advances members’ living standarts when they have similar economic structures and international trading patterns, but proves detrimental when these diverge. Therefore, it can be said that the enlargement process with the new candidate countries including Turkey puts forward both opportunities and threats for the future of European Union in te...

"Solidarity is at the same time a foundation of European integration and a condition for its progressive development. This is true for both aspects of solidarity – as a principle of mutual responsibility, and as practical mutual assistance and support. For many years now, the Economic and Monetary Union and the Common European Asylum System have been in a deep crisis. The epicenter of such crises is Greece, but their root lies deeper, in a constitutional and legal framework that hinders the pursuit of the common interest and the development of solidarity. The efforts undertaken so far to remedy these shortcomings are not up to the challenge. And what is at stake is not only the success of two important integration projects, but the preservation of the values on which the Union is founded, above all democracy and fundamental rights.
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La solidarité est à la fois un fondement de la construction européenne et une condition de son développement. Elle l’est dans ses deux dimensions : principe de responsabilité réciproque et action concrète d’assistance mutuelle. Depuis plusieurs années, l’Union économique et monétaire et le Système européen commun d’asile sont en crise. L’épicentre de ces crises est la Grèce, mais leur origine réside, en amont, dans un cadre constitutionnel ou légal empêchant l’affirmation de l’intérêt commun et le développement d’une action réellement solidaire. Les efforts entrepris jusqu’ici pour remédier à ces carences ne paraissent pas à la hauteur des défis. Or, l’enjeu n’est pas seulement la réussite de deux importants projets d’intégration, mais aussi la préservation des valeurs sur lesquels l’Union est bâtie, et tout particulièrement des principes de démocratie et de respect des droits fondamentaux."

Abstract
Romanian Abstract: Lucrarea are în vedere următoarele aspecte: prezentarea uniunii economice și monetare din perspectiva aderării unui stat membru la aceasta, și în particular elementele juridice privind aderarea României la zona euro, condițiile juridice și cadrul instituțional din România precum și posibile efecte juridice ale trecerii la euro, astfel cum acestea rezultă din dreptul comparat.

English Abstract: This paper focuses on the following issues: the presentation of the Economic and Monetary Union from the perspective of the accession of a Member State to it, and in particularhighliging the legal elements regarding the accession of Romania to the eurozone, the legal conditions and the institutional framework from Romania and possible legal effects of the changeover, as they result from the comparative law.


Note: Downloadable document is in Romanian.

Sandru, Daniel-Mihail, Cadrul juridic si institutional al aderarii la moneda euro. Starea de drept si de fapt in Romania (Legal and institutional framework for accession to the Euro currency. The state of art in Romania) (November 21, 2018). Revista Studii si cercetari juridice, an 7 (63), nr. 4, p. 507–523, Bucureşti, octombrie – decembrie, 2018.

ABSTRACT The sovereign debt crisis in the euro area is a symptom of policy failures and deficiencies in – among other things – fiscal policy coordination. The first nine years of the euro were not used effectively in order to improve public finances, while the Stability and Growth Pact was watered down. Spillovers from the financial and economic crisis compounded fiscal difficulties in the euro area, especially in certain member countries. This paper looks back at the history of fiscal policies and rules in Economic and Monetary Union (EMU). It makes proposals to strengthen fiscal policy governance that go well beyond the legislation set to be adopted in autumn 2011. The authors consider these additional governance measures to be essential for effective policy coordination and sound public finances in the future.

This book discusses how the global financial crisis induced the ‘Great Recession’ and triggered problems within the eurozone regarding sovereign debt. The authors argue that the failure of the eurozone to meet any convergence criteria, together with unjustified emphasis placed upon unproven rules and institutions derived from contemporary neoliberal macroeconomic thinking, was an accident waiting to happen. Additionally, a series of potential remedies is proposed, ranging from a critical evaluation of solutions that the EU has already instigated (moral suasion and financial relief measures) together with a series of alternative propositions (fiscal federalism and a ‘European Clearing Union’). Moreover, the analysis is extended to the collapse of the eurozone and to options for national economic self-governance.

The aim of this work is to identify options to solve constant disequilibria in the IMS and to establish the role these currencies can play in its resolution. Initial questions are: What will be the future of the IMS, and what could be the role of the euro, the dollar and the renminbi (RMB)? Is it possible to prevent the constant disequilibria of the system (IMS)? Is it possible to establish cooperative mechanisms among these currencies to avoid constant crises?
In practical terms, this work will use an interpretative approach, not to simply provide a description of monetary history, but, rather, to use specific cases to stress some characteristics of the IMS since 1810 and, in addition, to use a positivist approach i.e., to transform information into variables and strive to discern a causal relationship between dependent and independent variables.

The aim of this thesis is to evaluate the conduct of macroprudential policies in an heterogenous monetary union, such as the Eurozone, by borrowing on the very recent theoretical and empirical developments of Dynamic Stochastic General Equilibrium (DSGE) models and Bayesian econometrics. We account for two main patterns of the Eurosystem: the business cycles divergence between core and peripheral countries and the globalization of banking and its spillovers when implementing macroprudential policies. As a main result, the implementation of macroprudential policy measures improves welfare at the global level. The highest welfare gains are observed when countries use multiple instruments and when macroprudential policy is implemented in a granular fashion. However, the conduct of macroprudential policy is not a free lunch for participating countries: in most situations, peripheral countries are winners while core countries record either smaller welfare gains or even welfare losses. In many policy experiments, we find that there exists an equilibrium that combines welfare increases at both the global and national levels for all participants but its enforceability requires a federal action, thus justifying the existence of a coordination mechanism such as the ESRB in the Eurozone. Finally, the possibility of banks to engage in cross border lending introduces an important spillover channel that tends to increase the welfare gains associated to macroprudential measures. Ignoring this phenomenon may lead to fallacious results in terms of the welfare ranking of alternative implementation schemes.

While many central banks around the world pursued quantitative easing programs in recent years responding to the weak inflation outlook, the ECB faces unique legal constraints with respect to its Public Sector Purchase Programme (PSPP) launched in 2015. Most importantly, due to the prohibition of monetary financing enshrined in art.123 of the Treaty of the Functioning of the European Union (TFEU), the ECB may find itself in an – for the ECB - unprecedented position of a creditor participating in a sovereign debt restructuring and facing legal constraints in  accepting any debt cut on its sovereign bond holdings. Against this backdrop, this article shines a light on the potential legal options available to the ECB, should another debt crisis in the euro area materialise. For this purpose, we will also take a closer look at two seminal judgements by European Courts, delineating the legal boundaries in which the ECB may conduct its non-standard monetary policy.

1. Introduction 2. ECB’s tasks and competences; 3. The intervention of the ECB in the Eurocrisis; 4. Legitimacy of the interventions and conditions attached to it; 5. The unclear borders of monetary policy; 6. Is  the activity of central banking “political”?

This paper discusses the legal framework for sovereign debt restructuring in the euro area – both de lege lata and de lege ferenda. Sovereign debt restructurings remain exceptional events that come with profound implications for financial stability and monetary policy transmission. However, they may be necessary as part of a financial assistance program to a euro area Member State, as was the case for Greece in 2012. This paper seeks to contribute to the ongoing discussion on how to enhance the functioning of the Economic and Monetary Union (EMU) by exploring the legal aspects of sovereign debt restructuring in the euro area. This includes an analysis on whether and how the procedures for sovereign debt restructuring in the euro area can be made more orderly, fair, and predictable by establishing a European Sovereign Debt Restructuring Framework (ESDRF). Drawing upon international standards for sovereign bond documentation, one may consider the inclusion of enhanced Collective Action Clauses (CACs) as well as certain technical amendment clauses. In addition, two options for a sovereign debt dispute resolution mechanism are discussed: (i) a separate chamber at the Court of Justice of the European Union (CJEU) and (ii) a sovereign debt arbitration mechanism. The paper makes no judgement on the economic or political feasibility and necessity for such changes, but seeks to shed some light on the legal aspects to be taken into account in the context of reforming the euro area's framework for sovereign debt restructuring.

En este ensayo se propone como hipótesis que la unión monetaria es un componente lógico y necesario del proceso de integración económica del Sistema de la Integración Centroamericana (SICA), no obstante, aún no se han logrado completar las condiciones necesarias para su instauración. En consecuencia, el objetivo general es analizar si, de acuerdo al estado actual del proceso de integración económica del SICA, es factible establecer una unión monetaria en la región, lo cual, se aborda a través de cuatro objetivos específicos: 1) Conocer los antecedentes del objetivo de establecer la unión monetaria en Centroamérica. 2) Estudiar el replanteamiento del proceso de integración en Centroamérica y su incidencia en el objetivo de la unión monetaria. 3) Analizar cuáles son las razones técnicas indispensables para establecer la unión monetaria en el SICA. 4) Determinar si de acuerdo al estado actual del proceso de integración económica en el SICA, es factible instaurar una unión monetaria. Para analizar el fenómeno descrito y su situación en el SICA, se empleó la metodología hipotético-deductiva, mediante la cual se observó el fenómeno por estudiar, se creó una hipótesis para explicar dicho fenómeno, se hicieron razonamientos lógicos, se dedujeron consecuencias o proposiciones más elementales para la propia hipótesis y se verificó la verdad de los enunciados deducidos, comparándolos con la realidad, partiéndose de lo general a lo específico.

The establishment of the ESM has been a key factor in the confrontation of the financial and sovereign debt crisis. Its risk sharing character, the austerity requirements in the context of strict conditionality and of course its institutional placement outside the EU legal order, have for long time placed ESM at the center of political and legal controversy within the EU. The Commission has recently come forth with a proposal for the integration of the ESM into the EU legal order and its subsequent succession by an “EMF”. The compatibility of the proposal with EU primary law is, as always, the first and foremost step, towards its adoption. In this context, the issues of the appropriateness of the legal basis of Art 352 TFEU as well as the ambiguous status of the planned EMF hide significant questions of core constitutional nature.

The European financial and economic crisis made Germany a leader trying to introduce the principles of order to the Economic and Monetary Union in line with the ideas of German governance policy (Ordnungspolitik), which is explained by ordoliberalism. However, there is strong relativism visible in constructing European reality, resulting from the fact that the adopted ordoliberal assumptions do not fit into the macroeconomic, diversified space of the eurozone, and, what is more, cannot be implemented during the recession, because their effectiveness is determined by the long-term perspective and national identity. Moreover, the role of the leader does not comply with the principles of Ordnungspolitik. On the other hand, the partnership with France, which is necessary to maintain stability of the eurozone, causes a move away from the conceptual assumptions of ordoliberalism. The aim of the article is to draw attention to Germany’s ambivalence in solving the economic problems of EMU, ...

More than any other area in the world Europe has over the past three decades witnessed a process of transnational capitalist class formation, representing the most transnationally oriented sections of European capital and overlaying national capitalist classes. Transnationalization here does not imply the withering away of national states and national social formations but rather the rise of relations across national borders and the constitution of actors that operate not ‘above’ the national state, but  in different national contexts simultaneously.  It is from this perspective that we can understand how transnational class agency has helped to transform the project of European integration into an ever more undiluted neoliberal project. The essence of this hegemonic class project has been the creation of a transnational  space for capital in which the latter’s rule is established precisely by preserving the formal sovereignty of the member states while subordinating their democratic governance to the dictates of the single market. The inherent contradictions of this project have been exposed and exacerbated by the current Eurozone crisis, which is endangering more than the single currency but threatens to derail the neoliberal project that has been spearheaded by the European capitalist class over the past three decades.  While its steadfast adherence to the current austerity  drive may be seen as short-sighted, there are no attractive alternatives for the European capitalist class.

How do regional changes affect the process of global governance? This article addresses this question by examining how the International Monetary Fund (IMF) responded to the challenges presented by Economic and Monetary Union (EMU) between the signing of the Maastricht Treaty in 1992 and the launch of the euro in 1999. Based on primary research from the IMF archives, the article illustrates how the IMF’s efforts to reconfigure its relationship with European institutions evolved gradually through a logic of incremental change, despite initial opposition from member states. The article concludes that bureaucratic
actors within international organizations will take advantage of informal avenues for promoting a new agenda when this fits with shared conceptions of an organization’s mandate. The exercise of informal influence by advocates for change within an international organization can limit the options available to states in formal decision-making processes, even when these options cut across
state preferences.

This paper examines the European Monetary Union (EMU) and the euro crisis through the lens of a robust political economy. Based on the history of monetary unions, monetary union is unlikely to survive without a fiscal union or strong constitutional constraints. The EMU has neither, and its institutional structure makes it unsustainable. Since the euro
was (and is) fundamentally a political – rather than economic – project, we argue that policymakers will not allow the EMU to fail. Rather, continued movement towards greater EU-level fiscal, and ultimately a fiscal union, are likely.

Since the beginning, the Economic and Monetary Union lacks of stabilization mechanisms in order to answer to fiscal imbalances, particularly during macroeconomic crisis. The European Unemployment Insurance (EUI) is one of the most interesting options, both for its economic viability and its clear link with the single market. It would be an instrument by which the cost of unemployment coverage could be shared, at least partially, during economic crisis times. This contribution aims to describe the state of the art of several proposals of EUI that are being discussed and to answer some challenges that these initiatives have from the legal and practical point of view.

This article applies the governance typology used in this special issue to the evolution of euro area governance. The article begins with a description of Economic and Monetary Union’s original governance structure, with third order governance (shared norms) present in varying degrees in monetary, financial and fiscal governance. While a shared consensus on the importance of an independent central bank to pursue price stability allowed for the creation of the European Central Bank, euro area governance was otherwise limited to the coordination of national policies. Since the crisis, shifting norms (third order governance) allowed for the creation of new bodies (e.g. the European Stability Mechanism and the Single Supervisory Mechanism) and the expansion of the powers of existing institutions (particularly the ECB). In areas where no normative changes occurred (fiscal and economic policy coordination), second order governance has been marked by incremental changes to existing institutions. The degree to which economic governance has become more hierarchical depends both on the strength of third order governance norms and the preferences of large states like Germany either to retain their own sovereignty or create additional rules that bind member states.

The present research aims to present and analyze the causes that led to the crisis in the Eurozone. The 2008 financial crisis revealed the weaknesses, the chronic problems and the differences which were lurking and emerged between the member states. The disparities of the economies combined with asymmetric monetary policy and political failures of member states exacerbated the problem resulting in the loss of credibility of some member states. The most vulnerable countries were those which are facing chronic debt problems and those which have directly affected by the financial crisis. The data for this investigation were collected from the databases of Eurostat and the European Central Bank. Finally, the present research concludes that the Eurozone crisis could be avoidable if the right moves have been made before the crisis and if there was a common stance for the beginning in order to tackle the problem.

The divide in the Eurozone between a small set of core economies with strong international financial positions (North) and a set of debtor states that show periodic vulnerability in international financial markets (South) remains a core feature of the area. Our understanding of that schism, however, remains incomplete. Comparative political economists have emphasised differences in labour market institutions – in particular wage setting – to explain the split. This article takes issue with that view, suggesting that the case for a wage-driven explanation of creditor and debtor states’ positions in the Eurozone remains weak. Instead, it emphasises the role of capital flows and the uneven impact these had on domestic demand across Eurozone states both before and after 2008. This macro-economically centred explanation – in which financial, rather than labour market, dynamics play the central role – has important implications for our evaluation of Eurozone reforms.

In conditions of financial globalization, innovations’ development and a broad spectrum of risks’ amplification, between financial stability and monetary stability are created an interdependence relationship. Ensuring systemic financial-monetary stability has become a priority of the international economic agenda, particularly for candidate countries to the euro area. The purpose of this article is to highlight the importance of nominal and real convergence as a precondition for financial and monetary stability under Economic and Monetary Union (E.M.U.). Also, we made a comparative analysis of nominal convergence criteria on the example of Central and Eastern Europe countries during the period 2006-2010, stressing, finally, the need to revise the criteria for accession to the Euro zone.

In 2001 the GCC (Gulf Cooperation Council) countries signed the Economic Agreement, which envisioned the establishment of a GCC Monetary Union in 2010. The project faced its biggest setback in 2009, when the UAE (United Arab Emirates) after Oman, decided to withdraw. In this dissertation, I examine the opt-out of the UAE from the Monetary Union by studying the economic consequences of participation in the Monetary Union and the ideational factors that have influenced the decision to withdraw. I will argue that the withdrawal mainly can be explained by ideational factors, which is symbolised by the fact that the withdrawal has been caused by a diplomatic rift with over the location of the Central Bank of the Monetary Union. The decision to locate the Central Bank has been perceived as an indication that Saudi Arabia intends to dominate the future Monetary Union, which clashes with a more assertive UAE that aims to carve out a more independent role for itself and refuses to accept Saudi domination. In addition, the decision has touched upon the pride of the UAE, as it feels entitled to hosting the Central Bank as there is a perception that it outperforms other GCC countries in the economic sphere. Furthermore, it should be noted that ideational factors have been allowed to play an important role as there are limited economic imperatives for the UAE to participate in the Monetary Union, while some costs can be associated with participation. On top of that, the centralised, closed and personalised decision-making structure in the UAE has contributed to the importance of ideational factors, as there are no checks on the power of the ruling elite, there is limited accountability and there is a fear among the ruling elite to give away sovereignty in order to preserve their power position.

Member states of the Eurozone are undergoing a turbulent period both domestically and internationally. On the national front, many countries, including Greece and Spain, have been led to early elections or the collapse of their government as a result of the serious financial and economic crisis. Reforms have been hailed as the panacea to the affected member state’s woes. These reforms have mainly addressed the need to reduce costs, often via labour market reforms.

When analyzed in detail, the countries which are now under scrutiny did not undertake these necessary reforms during times of economic prosperity.  Political determination for change was not matched by willingness to upset the civil society in the short term.  Far-reaching measures must now be implemented in the labour markets and taxation policy convergence should be explored. Only real reform, likely leading towards fiscal union, can ensure a future for any member state within the Eurozone.

The European sovereign debt crisis of 2011-2012 revealed the currency union's fragility, which essentially emanates from the tension between a single monetary policy and decentralized fiscal policies. While considerable efforts have since been made to strengthen the Economic and Monetary Union, the COVID-19 pandemic has once again laid bare its weaknesses.

To cushion economic and financial shocks and sever the sovereign-bank doom loop, several policy proposals to create a common public debt security have been put forward. However, none of them has so far seen the light of day. This paper reviews the following most promising safe asset proposals from a legal perspective: (a) sovereign bond-backed securities (SBBS), (b) E-bonds, (c) Purple bonds and (d) Coronabonds. While SBBS and E-bonds are "synthetic" securities, employing means of securitization to reduce risk-sharing, Purple bonds and Coronabonds involve at least a partial debt mutualization across the Union.

Rather than focusing on the feasibility of these proposals under EU law or national constitutional law, this paper adopts the investor's perspective and reviews the "safety" features of the respective proposals. Specifically, it compares the proposals against the backdrop of the following formal and functional legal characteristics: (i) governing law, (ii) dispute settlement forum, (iii) investor protection, and (iv) investor representation in sovereign debt restructurings. As is the case with any other public debt instruments, these elements are vital for the assessment of legal risks associated with the investment. They thus bear direct relevance for the feasibility of the safe asset proposals, the pricing of these instruments by private markets, as well as their suitability to achieve the objectives envisaged by economic policymakers.

I conclude that while much progress has been made in identifying and calibrating financially and economically sounds safe assets, critical legal questions have not yet been answered to a satisfying degree. The paper thus recommends that policymakers provide more clarity on the legal basis as well as crucial legal design features of the respective safe asset with a specific emphasis on those legal characteristics that render assets "safe" for investors.