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This chapter analyzes the rules and institutions that have characterized the European Monetary Union (EMU) during its prolonged crisis, stressing the limits of the strategy pursued by the European authorities. It also examines the issues of current account imbalances, economic growth and the problem of debt, and their interconnections. The main purpose of this chapter is to indicate feasible economic solutions and political arrangements in order to complete the institutional system of the EMU. This requires appropriate reforms of its institutional architecture. But such reforms demand changes in the treaties in order to make the Eurosystem more consistent and endowed of democratic legitimacy, so to have appropriate tools, resources and policies that can contribute to the stability, cohesion and development of the Eurozone.

The Eurozone debt crisis has indeed jeopardized the recovery plans put in place post global crisis by regulators, policymakers, and the sovereigns. Though the crisis is epicentered in the Eurozone, the knock-on effects of the crisis are felt all across the globe. The emerging and developing economies (EDEs) are also expected to post lower growth on account of worsening external environment and a weakening internal demand. This chapter analyzes the causes for sovereign debt crisis, presents the implications of sovereign debt crises, and draws lessons for banking sectors more particularly in the context of emerging markets like that of India.

This chapter investigates the impact of the euro crisis on Asia’s short-term economic outlook. This chapter tries to answer this question by examining both the trade and financial channels of crisis transmission. More specifically, it looks at the effect of euro crisis on Asian exports and growth, contagion from EU financial markets to Asian financial markets, and influence of EU bank lending on credit growth in Asia. The chapter also touches upon Asia’s policy space to assess how well the region is positioned to weather another major external shock. This chapter finds that the impact of euro crisis on developing Asia points to a sizable but manageable short-term impact. Furthermore, our analysis points to a significant effect on the region’s financial systems, especially its banking sector. This chapter informs policymakers of the impact of the euro crisis and advice to continue to keep a close eye on eurozone developments and their ramifications for their economies.

The objective of this chapter is to examine the recent experiences of capital flows and the associated fiscal imbalances since the inception of the Eurozone. We show that the standard explanation for understanding these fiscal imbalances and capital flows is viable, but is not complete given the unique circumstances surrounding these fiscal imbalances within the Eurozone. That is, the creation of the Eurozone provided some fiscal and monetary stability up until the shock of the 2008 Financial Crisis. After the 2008 Financial Crisis, the interaction between the current account and fiscal imbalances started to spread throughout the Eurozone members and many of these Eurozone members began to engage in policies in an attempt to restore stability and to stem capital outflows by implementing fiscal reforms. In fact, some of the Eurozone members attempted to restore their fiscal viability in response to the 2008 Financial Crisis, but not with much success. Thus, the Eurozone members, collectively, need to reexamine best practices to implement fiscal policies that are resistant to intense financial shocks. Empirically, we examined the following two hypotheses in this chapter via the Wald test statistic. The first hypothesis examined the effect of the own country fiscal imbalances within own country is uniform across all the Eurozone members. Then, the second hypothesis examined the fiscal imbalances of one Eurozone member do not have on other Eurozone members. The Wald test statistic rejected both hypotheses.

The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II. Globalization, liberalization, integration, and transition processes generally shaped the crucial milestones of the macroeconomic development and substantial features of economic policy and its framework in Europe. Policy-driven changes together with variety of exogenous shocks significantly affected the key features of macroeconomic environment on the European continent that fashioned the framework and design of monetary policies.

This chapter examines the key basis of the central bank’s monetary policy on its way to pursue and preserve the internal and external stability of the purchasing power of money. Substantial elements of the monetary policy like objectives and strategies are not only generally introduced but also critically discussed according to their accuracy, suitability, and reliability in the changing macroeconomic conditions. Brief overview of the Eurozone common monetary policy milestones and the past Eastern bloc countries’ experience with a variety of exchange rate regimes provides interesting empirical evidence on origins and implications of vital changes in the monetary policy conduction in Europe and the Eurozone.

In a globalised economy, the EU, being self-confident, could shape international standards by defending and promoting its own socioeconomic model. Social democratic parties rhetorically confess the need for a ‘European social model’, but meanings and ways to achieve it differ largely. In a comparative case study on the programmatic positioning of the German Sozialdemokratische Partei Deutschlands and the Spanish Partido Socialista Obrero Español, the parties' perspectives on the integration mode and their handling of the Economic and Monetary Union framework and its crisis over the last decade are traced. Although similar paths from neoliberal convictions of the ‘third way’ to a positive integration process in a fiscal union setting are found, the scope and levels vary, illustrating the abilities of both parties to meet new transnational challenges. The crisis of the Eurozone was a definitive turning point for the positioning of the Social Democrats in Spain in favour of more political and fiscal integration. In contrast, their German comrades already advocated increased social integration of the EU since 2005 but remained very cautious regarding reforms of the economic framework established by the Eurozone.

The social protests on the streets of indebted sovereigns in crises across the Eurozone have made debt restructuring an imperative. Further delay in achieving this expeditiously and equitably significantly exacerbates the social costs of crises from which current and future generations will struggle to recover. This article examines the feasibility of the drastic and widespread debt restructuring needed to resolve the problem in the face of existing private law sanctions that protect individual creditor rights. It relies on an analysis of US policy in the transition to a securitized market and of key sovereign debt cases to reveal the historical contingency of private law protections. It concludes by showing that the effectiveness of private law protections have always been constrained by the overriding imperative to achieve debt sustainability with negotiated and consensual workouts. This can be achieved in the Eurozone with statutory constraints on enforcement action pending the settlement of debt workouts as suggested in a recent proposal.

Sovereignty retains considerable currency today insofar as it fuses ordinary understandings of the state, the nation, and democracy. Against widespread expectations, however, the European Union has increasingly harnessed sovereignty as a source of vitality. We are thus witnessing a mainstreaming of populist politics, as the rhetoric of sovereignty no longer disqualifies new EU institutions and policies. This can be better understood if we consider sovereignty, from a constructivist perspective, as an evolving set of practices. First, sovereignty evolves within political and administrative circles, as European officials act to modify longstanding practices of state sovereignty. Second, sovereignty evolves in an increasingly politicized context, as political leaders dramatize EU crises in order to mobilize coalitions around new practices of popular sovereignty. This dual dynamic of state sovereignty and popular sovereignty is demonstrated in the case of the Eurozone and then extrapolated to the current trajectory of the EU polity against the benchmark of US federalism after the Civil War. An open question is whether sovereignty practices in the European Union will continue to evolve without compromising the Union's cosmopolitan and liberal objectives.

This chapter argues that the key Eurozone imbalances are not a failure of nation states. At the heart of the integration process is the convergence criteria – limits on government deficit, debt, interest rate, inflation, etc. While these were intended to eliminate asymmetries across countries, the conception of convergence was too narrow since the euro designers completely ignored the elephant in the room – that countries were on different technological frontiers. I show that this difference is an important determinant of the key macroeconomic imbalances across the Eurozone. It follows that the primary convergence criterion should be limits on non-price competitive gaps across countries. The chapter overturns the simplistic view of price competitiveness and illustrate that the regulating forces of competition originate from productive structures.