The European Monetary Union failed because of misunderstood macroeconomics
Department of Social Sciences and Business Roskilde University, Denmark
Please cite the paper as:
Jesper Jespersen, (2018), The European Monetary Union failed because of misunderstood macroeconomics, World Economics Association (WEA) Conferences, No. 2 2018, The 2008 Economic Crisis Ten Years On, 15th October to 30th November, 2018
The European Monetary Union and by that the Euro has failed because of not fulfilled expectations related to economic growth and prosperity for the participating countries. The glittering promises were expressed when the idea of a common European currency was launched back in 1989 and repeated frequently until the (misunderstood) macroeconomic realities hit back from 2008 and onwards.Even before 2008 it became a constant battle to counterbalance some of the negative consequences of a prematurely introduced common currency. A process, which has absorbed a large part of the time and decision power of the European council ever since the euro was made real. Instead of enforcing an integrative process, the increasing economic diversion have caused disruption inside euro-countries and tensions among the EU-member states. The macroeconomic performance has been within the euro-zone significantly below the non-euro countries with regard to unemployment, growth and public debt. On top of that, there has been ever since 2010 an ongoing and increasingly intense political debate (outside the corridors of Brussel, Berlin and Paris) about the scraping of the common currency and by that to break the downward spiral of low growth and high unemployment. This paper will conclude with a strong recommendation that monetary and fiscal policies should be coordinated and directed towards a reduction of the private sector structural excess savings and hereby, to avoid low growth and persistently high unemployment. As long as the private sector is not self-adjusting to full employment, the public sector budget should mirror the private structural surplus. Unfortunately, a policy which the fiscal compact is preventing.