Juncker's State of the Union Address

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Question 1; Do you agree that euro membership should be compulsory for all EU member states?

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Question 2: Do you agree that the euro has had more benefits than costs?

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Summary

The European Commission president’s suggestion that joining the euro should be compulsory for all EU members is not well received by over three quarters of leading economists responding to the latest Centre for Macroeconomics and CEPR survey. Asked a broader question about the success of the common currency, half the experts think it has had more benefits than costs while only a quarter think the opposite. The majority view is that there have been significant benefits but the way the Eurozone has been operated has also imposed significant costs.

Compulsory Eurozone membership

In Jean-Claude Juncker’s latest ‘State of the Union’ annual address, the president of the European Commission said the following:[i]

‘If we want the euro to unite rather than divide our continent, then it should be more than the currency of a select group of countries. The euro is meant to be the single currency of the European Union as a whole. All but two of our Member States are required and entitled to join the euro once they fulfil all conditions.’

The first question of the latest CFM-CEPR expert survey asked panel members the following question from an economic point of view.

Question 1: Do you agree that euro membership should be compulsory for all EU member states?

Sixty-four panel members answered this question. A strong majority of 76% either disagree or strongly disagree; 11% neither agree nor disagree; and 14% either agree or strongly agree. The outcome is similar when the answers are weighted with self-reported confidence levels.

Among the panel members who disagree, several highlight the importance of having the right economic conditions for a monetary union to be mutually beneficial. Kevin O’Rourke (University of Oxford) says that the Eurozone ‘isn't an optimal currency area as it stands. Broadening it won't help. I see no sign of the EU wishing to put in place a genuine fiscal union, or even a genuine US-style banking union.’

Similarly, Thorsten Beck (Cass Business School) argues that ‘Business cycles and economic structures across EU countries are too different to justify one currency. The Eurozone crisis has shown that too diverse a group of countries do not make a sustainable currency area – diversity not only in economic structure and cycles but also institutions.’

A more general argument is put forward by Martin Ellison (University of Oxford) who comments that ‘in economics we typically want to make something compulsory if there is a clear market failure… I don’t see what the market failure is here that would need such compulsion. Shouldn’t the benefits of a monetary union be sufficient to ensure that countries like Sweden and Poland join willingly?’ A related view is expressed by Simon Wren-Lewis (University of Oxford): ‘This is politics driving economics, yet again.’

Panel members who disagree with the idea of compulsory euro membership also point to the problems that Eurozone countries have faced. Michael Wickens (University of York) says that ‘Membership of the euro has proved disastrous for Greece, Ireland, Italy, Portugal and Spain as it has given them the wrong monetary policy and, through persistently higher inflation and negative real interest rates, caused a huge loss of competitiveness and fuelled over-borrowing and excessive indebtedness.’

Several of the experts who disagree with the idea of compulsory euro membership argue that a common currency could be bad for a unified EU. Jürgen von Hagen (University of Bonn) writes ‘The euro has already proven destructive and divisive for the countries currently using it. It would be foolish to repeat the earlier mistakes of making countries adopt the euro which are not ready for it. It would be even more foolish to force countries to adopt the euro which do not wish to do so. This would further weaken the European Union.’

By contrast, experts who agree with the statement stress the role of the euro for further economic and political integration. Panicos Demetriades (University of Leicester), who strongly agrees, emphasises the need for further integration and the role of the euro. He argues:

‘Without further integration, the risks of rising nationalism and populism pose a serious threat. Further economic convergence is needed and better social safety nets. Sooner or later some degree of fiscal federalism will be needed and the use of the common currency makes all aspects of integration a lot easier. It also makes Europe a more powerful force internationally. The momentum needs to be maintained, so that in one or two generations, citizens of Europe will not know any alternatives. At that stage, Europeans will begin looking like the United States. Does anyone today think that California or Florida could have their own currencies?’

Fabrizio Coricelli (Paris School of Economics), who also strongly agrees, writes: ‘As the EU is meant to provide a framework for full economic integration, it makes little sense to have some EU members outside the euro. This differentiation potentially puts in motion disintegration forces.’

Volker Wieland (Goethe University Frankfurt), who neither agrees nor disagrees, points out that ‘it is a fact already that all EU member states except Denmark and Great Britain are required to adopt the euro once they fulfil the conditions. I agree that it is a fact at this point. I would not recommend starting an initiative to change the current rules.’ He continues: ‘I think great care should be given to the economic conditions. Clearly, there've been mistakes in the past, and countries admitted based on faulty data or insufficiently sustainable conditions.’

The euro: benefits versus costs

Juncker's remarks once again raise questions about the success of the euro (or lack thereof). The second question of the survey asked the panel of experts to make an overall judgement.

Question 2: Do you agree that the euro has had more benefits than costs?

Sixty-six panel members answered this question. Only a small minority disagrees: 50% either strongly agree or agree; 24% neither agree nor disagree; and 26% either strongly disagree or disagree. When answers are weighted with self-reported confidence levels, then the fraction disagreeing increases slightly to 27%.

Several of our panel members point out that this is a difficult question to answer. One reason is that it is not clear what institutions would have been in place in the Eurozone countries without the euro. Moreover, this question has many dimensions and requires weighing of the impact of the euro for different countries and across different time periods.

The views of the majority are nicely summarised in comments made by David Cobham (Heriot-Watt University): ‘there have been and are significant benefits – better monetary policy for many countries, lower transactions costs, a more stable external exchange rate, etc. – but the way the Eurozone has been operated has also imposed significant costs, notably since 2010-11. However, it should be possible to eliminate those costs without losing the benefits.’

Several experts argue that there have been winners and losers. John Van Reenen (MIT), who neither agrees nor disagrees, says ‘The euro has had benefits, especially for core countries. But for peripheral countries the effect has been adverse as exemplified by Greece where an extreme adverse shock could not be partially offset by exchange rate flexibility.’

Some panel members see advantages outweighing disadvantages for a larger set of countries. Tomasso Monacelli (Bocconi University), who agrees, argues that ‘on net, the benefits have outweighed the costs for all countries, although the benefits have not been shared evenly.’

Disagreement among macroeconomists is often due to weighing the importance of different aspects of a problem differently. What is somewhat unusual about this survey is that there is also some disagreement about the benefits and/or costs of particular channels.

For example, Ray Barrell (Brunel University), who strongly agrees, points out that ‘Removing exchange rate volatility encourages trade and investment, and this gain outweighs any costs for most countries. The euro cements this gain.’ On the other hand, Ethan Ilzetzki (London School of Economics), who disagrees, writes ‘it is hard to detect any substantial trade benefits to the currency union.’

A similar battle of opinions can be found regarding the loss of independent monetary policy induced by the euro. Albert Marcet (Institut d’Analisi Economica), who agrees, argues that the euro ‘has given monetary discipline to countries that used to have chaotic monetary environments.’

By contrast, several respondents point to the costs of not having an independent monetary policy. Joseph Pearlman (City University London), who neither agrees nor disagrees, writes ‘one interest rate for all is never going to be ideal unless, as in the US, there is fiscal federalism.’

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How the experts responded

Compulsory euro membership

Participant Answer Confidence level Comment
Nezih Guner CEMFI Disagree Confident
I think the defining future of the European Union is the free movement of goods and factors of production (labor and capital). Insisting on euro membership for countries that are waiting to join the EU, countries that are on the periphery of Europe, will simply delay their membership and can make more harm than good. Such a policy will make sense if the EU takes bigger steps towards fiscal and political union.
Michael McMahon University of Oxford Disagree Confident
So long as the EU accept that not every country should appropriately be allowed in, as is implicit in the entry criteria, the countries should remain some control over the decision to enter.
Nicholas Oulton London School of Economics Strongly disagree Very confident
The euro has been disastrous for Europe so trying to make it compulsory for all member states will only make matters worse. Making it compulsory means amongst other things setting aside the Danish optout (which could perhaps be done when the Danes produced the right answer after a sufficient number of referendums). However if I believed that it would be good for Britain if the EU broke up then I would be inclined to answer the opposite: make it compulsory.
Ray Barrell Brunel University London Disagree Confident
Membership of the Euro has both benefits and costs. For most countries the benefits from reducing barriers should outweigh the cost of losing exchange rate adjustment as a tool in extreme circumstances. Countries whose real exchange rate is affected by other factors than the rest may be better off outside whilst fixing their exchange rate to the euro for the short term. Commodity producers such as Norway (who are not in the EU) may benefit from this. So could the least advanced southern countries whilst they catch up with the rest of the EU.
Elias Papaioannou London Business School Neither agree nor disagree Confident
Ethan Ilzetzki London School of Economics Neither agree nor disagree Not confident at all
As I note below, the costs of the Euro have proved to outweigh its benefits. However, I can see the potential political need to require this as part of a closer union involving a banking and fiscal union.
Jorge Braga de ... Nova School of Business and Economics, Lisbon Agree Extremely confident
Commitment to join implies effort to fulfill agreed conditions
Paul De Grauwe London School of Economics Disagree Very confident
There is a problem here. The new member states accepted the obligation to join when entering the EU. They did not get an opt-out like Britain and Denmark. So, form a legal point of view euro membership is compulsory. But I think this is a bad idea
Martin Ellison University of Oxford Disagree Very confident
In economics we typically want to make something compulsory if there is a clear market failure, for example in moral hazard or hidden information settings – think of the economic arguments around Obamacare. I don’t see what the market failure is here that would need such compulsion. Shouldn’t the benefits of a monetary union be sufficient to ensure that countries like Sweden and Poland join willingly? Another issue is timing. The Euro Area is only just emerging from majorly turbulent times, so it would make sense to take stock and consolidate before leaping into an unknown expansion that could well rattle markets.
Pietro Reichlin Università LUISS G. Carli Disagree Confident
I think that joining the EMU should be contingent to a large enough degree on convergence in terms of macro variables, such as inflation, nominal rates, governments budgets and debt levels. Local public opinion and political actors should also be sufficiently ready to accept some devolution of powers.
Albert Marcet Institut d’Analisi Economica, CSIC Disagree Confident
It has been clear that some members of EMU have not had fiscal policies conducive to the stability of the euro. As long as euro member countries have almost complete fiscal independence it is not a good idea to integrate all EU members in the EMU.
Jagjit Chadha National Institute of Economic and Social Research Strongly disagree Confident
It is simply not the case that all members of a free trade area should necessarily have the same currency. That they nearly all do have the same currency does not mean that we need to amplify the error. The single currency project has diverted scarce resources away from structural reform. The ECB has done very well given the initial conditions but the system still looks vulnerable.
Patrick Minford Cardiff Business School Strongly disagree Extremely confident
The participation in the euro of countries that manifestly were not capable of sustaining the necessary policies, given that it cannot be a 'transfer union' because of strong German opposition to this idea, has proved a major problem for the euro-zone and has led to a long 'euro-crisis'. Instead Juncker should have argued for reducing the number of countries by removing those that looking forwards may well still not be able to participate successfully. To add yet others potentially in the same category is inviting yet further future disasters.
Francesco Giavazzi IGIER, Università Bocconi, Milano Strongly disagree Very confident
David Smith Sunday Times Strongly disagree Very confident
The EU is in danger of repeating some of the errors that led to the Eurozone crisis, in particular wit the emphasis on widening the Eurozone rather than confining it to economies that have enough convergence. Making euro membership compulsory for all EU members would be a mistake.
John Hassler Institute for International Economic Studies (IIES), Stockholm University Strongly disagree Extremely confident
The Union should be based on the princip that a package of compulsory rules for all members apply only to areas were this is clearly necessary. An example would be that voting power in EU institutions requires that democratic principles and freedom of the press is respected in each memberstate. However, this does not apply to the case of a singel currency. Forcing convergence in this way onto members that do not want it is going to make the union dangerously unstable.
Harris Dellas University of Bern Strongly disagree Very confident
Volker Wieland Goethe University Frankfurt and IMFS Neither agree nor disagree Extremely confident
My understanding is that it is a fact already that all EU member states except Denmark and Great Britain are required to adopt the euro once they fulfil the conditions. This is also what Juncker repeated in his speech. I am somewhat surprised that he received so much attention with this statement. I agree that it is a fact at this point. I would not recommend starting an initiative to change the current rules. I would disagree with now requiring those EU members that received an opt-out to adopt the euro. I think great care should be given to the economic conditions. Clearly, there've been mistakes in the past, and countries admitted based on faulty data or insufficiently sustainable conditions. So , I agree with Juncker's statement to the extent it reflects the facts and disagree with wider interpretations suggesting that countries should adopt the euro without clearly fulfilling the conditions. Finally, whether it was a good idea in the first place is another question.
Michèle Tertilt Universität Mannheim Disagree Very confident
Mario Forni Università di Modena Agree Very confident
Charles Nolan University of Glasgow Strongly disagree Extremely confident
Simon Wren-Lewis University of Oxford Strongly disagree Extremely confident
Why should being part of the Single Market be tied to being part of a monetary union? There is no strong economic reason for this, which is why some countries have been able to opt out of the monetary union. This is politics driving economics, yet again.
Lucio Sarno Cass Business School Disagree Confident
While it may be desirable to have a common currency in a free trade area, it may well be that countries with specific circumstances require alternative central bank arrangements that make joining the euro suboptimal. It is far from obvious that imposing a common currency is beneficial to all countries in the EU in the same way.
Franck Portier Toulouse School of Economics Neither agree nor disagree Extremely confident
Question is what do we mean by EU. If we mean a free trade zone, then being also a member of the Euro Zone should not be required. If we tend to a federal view of the EU, then membership of the EU and EZ should go hand in hand. If the question is whether should current member of the EU be also members of the EZ, my answer would be no.
Philippe Martin Sciences Po, Paris Disagree Very confident
The fact that some members of the EU are not Eurozone members create problems but obliging these countries to join against their will would create even more problems and would be even more problematic. This is not the core problem of the institutional problems of the Eurozone. This is at best a distraction from these.
Ramon Marimon European University institute and UPF-BarcelonaGSE Disagree Very confident
It is desirable, but it will delay the development of the Euro Area to now insist on all EU countries forming part; furthermore, it is wishful thinking on JCJ part.
Ricardo Reis London School of Economics and Columbia University Disagree Very confident
The economic argument for forcing an agent to join a group or a set of contracts typically has to do with extreme adverse selection and ex ante gains from pooling to all. I do not see these here.
Claudio Michelacci EIEF Strongly disagree Very confident
Philippe Bacchetta Université de Lausanne Strongly disagree Very confident
Cédric Tille The Graduate Institute, Geneva Disagree Confident
Not requiring the Euro allows countries whose macroeconomic fundamentals are not (yet) in line with the euro area to nonetheless be integrated with Europe through the other EU dimensions
Alan Sutherland University of St. Andrews Disagree Extremely confident
Wouter Den Haan London School of Economics Strongly disagree Very confident
There are quite a few advantages to having a common currency. But there are also risks and the Euro crisis have exposed those clearly. The infrastructure of the eurozone has not changed fundamentally and those risks remain and it would not be a good idea to admit more countries before the current eurozone countries have established a robust stable credible currency union. Even then we should be careful to only include countries that will fit in nicely.
David Cobham Heriot Watt University Neither agree nor disagree Confident
Universal euro membership by all EU states should be seen as a long-term ambition rather than an immediate goal, and compulsory is not the right word! It is essential to sort out the defects in the way the Eurozone has operated in recent years (some of which are structural but most of which are to do with decisions taken by poltiicians who could have chosen to do something different), before or in parallel with any extension of the Euro Area.
Michael Wickens Cardiff Business School & University of York Strongly disagree Extremely confident
Membership of the euro has proved disastrous for Greece, Ireland, Italy, Portugal and Spain as it has given them the wrong monetary policy and through persistently higher inflation and negative real interest rates caused a huge loss of competitiveness and fuelled over-borrowing and excessive indebtedness. Only if a country has an economic performance like Germany's can it flourish in the euro system
Evi Pappa European University institute Disagree Very confident
The adoption of policies promoting labor market and product market flexibility is a key step in the future of the Euro area. The exchange rate adjustment role in stabilising cyclical fluctuations is limited and short lived. As long as fiscal, labor market and product market adjustments are in place an economy can adjust in asymmetric shocks without the need of adjusting the exchange rate. Yet, the euro membership should be an equilibrium outcome in a well designed and structured EU, not an obligation to its member states.
Fabio Canova BI Norwegian School of Management Disagree Confident
Memebrship to the eu and single currency are two distinct propositions
Antonio Fatás INSEAD, Singapore Disagree Very confident
Thorsten Beck Cass Business School Strongly disagree Extremely confident
Business cycles and economic structures across EU countries are too different to justify one currency. The Eurozone crisis has shown that too diverse a group of countries do not make a sustainable currency area - diversity not only in economic structure in cycles but also institutions.
John VanReenen London School of Economics Disagree Confident
A multi-speed Europe is viable and desirable for economic and political reasons
Gernot Müller Eberhard-Karls-Universität Tübingen Strongly disagree Very confident
Mirko Wiederholt Goethe University Frankfurt Strongly disagree Extremely confident
Giuseppe Bertola Università di Torino Strongly agree Extremely confident
Obvious.
Andrew Mountford Royal Holloway Neither agree nor disagree Not confident
One cannot separate the issue of economic prosperity from politics e.g. as the renowned economists, Besley and Persson have shown, greater `state capacity' allows for a more efficient collection of taxation and so an increased state capacity in the future. Efficient tax raising ability enables more investment in productive public capital (e.g. better rule of law, and more productive citizens via more efficient public administration (including law enforcement and tax collection), health, education, transport and housing investments) and so more efficient tax raising in the future. We undoubtedly live in a world where the capacity of states has been diminished by the growth of large and multinational corporations that are expert at playing one country off against another, avoiding taxation and evading regulations. Thus if the euro is part of a cooperative process that allows for the creation of greater state capacity in Europe and so the greater ability to collect taxes from large and/or internationally mobile corporations then these potential gains can be compared to the evident present day costs of e.g. high levels of unemployment in many euro member states. However, if this is the justification, then I don't see, from a practical as well as social welfare perspective, why a cooperative process doesn't do more to compensate the losers e.g. via transfers/investments within and across countries and within and across generations.
Costas Milas University of Liverpool Disagree Confident
No I don't and, to be honest, I don't really see the urgency to elaborate because a 'professional politician' makes a sentence of this sort.
Robert Kollmann Université Libre de Bruxelles Strongly agree Extremely confident
Euro membership for all EU states should be absolutely compulsory, as Euro membership is vital for further economic and political integration.
Jim Malley University of Glasgow Disagree Confident
Panicos Demetriades University of Leicester Strongly agree Extremely confident
Notwithstanding all its imperfections, the Euro remains the only way forward for Europe to continue to process of further economic and political integration and embed shared common values, including democracy, respect for human rights, rule of law and diversity throughout the continent. Without further intergration, the risks of rising nationalism and populism pose a serious threat. Further economic convergence is needed and better social safety nets. Sooner or later some degree of fiscal federalism will be needed and the use of the common currency makes all aspects of integration a lot easier. It also makes Europe a more powerful force internationally. The momentum needs to be maintained, so that in one or two generations, citizens of Europe will not know any alternatives. At that stage Europeans will begin looking like the United States. Does anyone today think that California or Florida could have their own currencies?
Francesco Caselli London School of Economics Strongly disagree Very confident
I mean, seriously?
Gino A. Gancia CREI and Universitat Pompeu Fabra Disagree Confident
Fabrizio Coricelli Paris School of Economics Strongly agree Very confident
As the EU is meant to provide a framework for full economic integration, it makes little sense to have some EU members outside the euro. This differentiation potentially puts in motion disintegration forces. However, an ill designed euro may be a powerful force for disintegration as well.
Jan Eeckhout University College London Agree Confident
Roger Farmer University of Warwick Disagree Extremely confident
Juncker has made it clear that he is not currently in favor of fiscal union. There is, nor never has been, any successful monetary union that does not involve significant fiscal transfers from one region to another.
Jürgen von Hagen Universität Bonn Strongly disagree Extremely confident
The euro has already proven destructive and divisive for the countries currently using it. It would be foolish to repeat the earlier mistakes of making countries adopt the euro which are not ready for it. It would be even more foolish to force countries to adopt the euro which do not wish to do so. This would further weaken the European Union.
Jonathan Temple University of Bristol Strongly disagree Confident
David Miles Imperial College Strongly disagree Very confident
The benefits of the single market are substantial and can (and should) be available to countries who do not believe that they are likely to be part of an optimal single European currency area.
Sylvester Eijffinger CentER, Tilburg University Agree Very confident
In principle, every EU member state (except Denmark and the UK) should join the eurozone in the long run but euro membership should not be compulsory in the short run. If we want to have some kind of European fiscal unification, then we should restrict euro membership even more. There is a trade-off between the broadness and deepness of EU monetary and fiscal unification.
Tim Besley London School of Economics Neither agree nor disagree Confident
If the EU is going to emerge as a United States of Europe in the long run then it would be non-sensical to allow separate currencies to remain. But the real issue is whether that vision commands sufficiently wide support.
Alexander Ludwig Goethe University Agree Very confident
Ugo Panizza The Graduate Institute, Geneva (HEID) Disagree Confident
We know that the EZ is not an optimal currency area, and the euro is as much a political project as an economic one. Forcing countries that are not interested into joining to join the euro will only complicate things without any obvious benefit
Kevin Hjortshøj... Oxford University Disagree Extremely confident
It isn't an optimal currency area as it stands. Broadening it won't help. I see no sign of the EU wishing to put in place a genuine fiscal union, or even a genuine US-style banking union. The actually existing EMU is a force for generating anti-European sentiment.
Jean Imbs Paris School of Economics Strongly disagree Extremely confident
Philip Jung University of Dortmund Strongly disagree Extremely confident
Sean Holly Cambridge University Strongly disagree Very confident
Joseph Pearlman City University London Strongly disagree Very confident
The UK's experience of not being a member of the euro while being in the EU was very positive. From a different perspective, Greece might well have benefited from still having the drachma, while being part of the EU.

Success of the Euro

Participant Answer Confidence level Comment
Nezih Guner CEMFI Agree Not confident
I think our current perspective on the Euro is shaped by the recent crisis and in particular by the Greek experience. Would Greece get out of the crisis faster and be better off without Euro? This is a difficult counterfactual to contemplate. I believe the problems at root of the Greek (or Spanish or Italian) economic problems, such as slow growth and high unemployment, are structural and there are limits what the independent monetary policy could do. With the recent rise of populist policies, being part of a monetary union might have more benefits than harms, as countries cannot avoid facing their structural problems. Yet, as Greek experience demonstrated there is an important human toll of this approach, and a common fiscal policy, with European-wide welfare-state measures, should be an important item in the EU agenda moving forward.
Michael McMahon University of Oxford Agree Not confident
For some countries it clearly does. For others, it is less clear. On balance, I lean toward greater benefits.
Nicholas Oulton London School of Economics Strongly disagree Very confident
It is well known that those who pushed for the creation of the euro were well aware of its flaws. But they hoped to use it as a lever to create a deeper political and economic unit, a United States of Europe in fact. The euro was severely tested by the global financial crisis and found wanting. So far the push for fiscal as well as monetary union has met with adamanine resistance from the one country whose agreement is necessary, Germany. I don't expect this to change in the foreseeable future. Meanwhile we will probably continue to see the rise of political forces which are fundamentally hostile not just to the euro but to capitalism as well.
Ray Barrell Brunel University London Strongly agree Very confident
Removing exchange rate volatility encourages trade and investment, and this gain outweighs any costs for most countries. The euro cements this gain. It also removes power from local elites who use devaluation to their advantage, in part to avoid difficult decisions on structural change. Reducing expected volatility is the core reason for having a currency area. It has produced benefits, but perhaps some countries joined before they were ready.
Tommaso Monacelli IGIER, Università Bocconi Agree Confident
On net, the benefits have outweighed the costs for all countries, although the benefits have not been shared evenly, due to the blatant undesirability of the fiscal policy regime. The Euro is an architecture trapped in midstream. It is however very unlikely that on average the benefits would have been higher if all countries had decided to maintain decentralized monetary policies (unless they had all decided to make their monetary policy "more scientific", meaning: CB independence, inflation targeting, etc..). Yet making their monetary policies simultaneously more scientific would have required a formidable commitment / coordination device, which is precisely what the Euro has provided.
Elias Papaioannou London Business School Agree Extremely confident
Ethan Ilzetzki London School of Economics Disagree Confident
On the benefit side, it is hard to detect any substantial trade benefits to the currency union, but monetary union allowed a slower current account adjustment as the crisis unfolded. On the cost side, the need for current account adjustment was most likely caused by monetary union, driving the flood of capital flows from north to southern Europe that fueled the crisis. When the crisis unfolded, this also made monetary (and to some extent fiscal) adjustment impossible.
Pietro Reichlin Università LUISS G. Carli Agree Confident
Answering this question requires making a guess about what would have happened in the EU in the absence of a monetary union, which is very difficult. In any case, I think that many of the problems that plagued part of the EU after the big recession would have emerged anyway. The real problem with the euro is in the poor performance of a selected number of countries and in the somewhat unexpected degree of financial systemic risks that materialized after 2010. These countries are those belonging to Peripheral Europe (the so called PIIGS). However, I think that Spain, Portugal and Ireland are now overcoming the problems created by the excessive volatility of capital flows and the EMU institutions are learning how to cope with systemic risks. The creation of the ESM was an important step and the ECB policies have been effective. Overall we can say that Italy's poor performance is the most important case that may lend ammunition to those who claim that giving up exchange rate depreciations is detrimental for growth. However, I think that Italy's problems are not much related to the EMU as their origin dates back to the end of the eighties/beginning of the nineties. The initial phase of the EMU (characterized by interest rates convergence) may have slowed down reform efforts in Southern Europe, but the situation has changed since then.
Jorge Braga de ... Nova School of Business and Economics, Lisbon Agree Confident
Benefits include ability to carry out better policies
Paul De Grauwe London School of Economics Neither agree nor disagree Confident
For some countries probably more benefits than costs, and for others not so. Very difficult to aggregate these costs and benefits
Martin Ellison University of Oxford Neither agree nor disagree Confident
The European Union as a whole has been a success, especially thinking about the single market. Adopting the Euro has probably contributed a fair bit towards that, although it’s difficult to construct the counterfactual. We economists have certainly learned a lot about the problems of running a monetary union since 1999 though!
Albert Marcet Institut d’Analisi Economica, CSIC Agree Very confident
The design of the institutions around the euro can obviously improve, but overall it has had many beneficial effects. The euro has promoted integration of EU countries economies. It has given monetary discipline to countries that used to have chaotic monetary environments. It has given low interest rates to fund cheaply investment and some large public debts. The ECB has been one of the few European-wide institutions acting with Europe in mind during the crisis.
Patrick Minford Cardiff Business School Strongly disagree Extremely confident
The euro-zone crisis has caused an enormous cost to the EU in terms of lost output and employment besides any knock-on effects into policies that have further restricted the environment for growth. By these last I mean a) policies for 'union' that have been manifestly inimical to the supply-side such as the financial transactions tax and b) macroeconomic policies that have been asymmetrically orientated towards demand restriction because of German unwillingness to take account of the effects of its trade surpluses on the rest of the zone. These costs have been at the level of macro policy. I agree that there have been some gains at the micro level in terms of lowered costs of inter-trade- such costs are largely of the order of 'triangles' of consumer surplus due to eliminating a distortion. But the macro costs have been so great as to swamp these because they are of the order of large persistent percentage losses to employment plus ongoing dynamic losses to growth.
Jagjit Chadha National Institute of Economic and Social Research Neither agree nor disagree Confident
There have been costs and benefits at the national and industry level but who can aggregate to give me the overall balance?
Francesco Giavazzi IGIER, Università Bocconi, Milano Neither agree nor disagree Not confident at all
John Hassler Institute for International Economic Studies (IIES), Stockholm University Agree Confident
Clearly the value to a particular member depends on the alternative. A country like Sweden with good monetary institutions currently have fairly little to gain, which is correctly reflected in the strong popular support for remaining outside.
David Smith Sunday Times Disagree Very confident
The euro has come through the crisis but it was touch and go and only happened because of an exceptional degree of official support. It was responsible for a second recession for Eurozone economies between 2011 and 2013, after the big recession in 2008-9. Its design remains flawed and membership has hurt some economies badly.
Volker Wieland Goethe University Frankfurt and IMFS Disagree Confident
To my knowledge there is no comprehensive scientific assessment that looks at all the economic benefits and costs of the common currency on a country per country basis. There are studies of partial aspects. Thus, I do not agree to a statement that claims certainty that the euro has had more benefits than costs (I add "in economic terms"). To give an example, giving up an independent monetary policy implies that a country cannot use monetary policy anymore as a stabilization tool directed towards national objectives. Monetary union policy is necessarily directed towards union-wide variables. Thus, inflation and output variability on a national level will be greater than in the case of national currencies and effective (credible) nationally-oriented monetary policies. There's evidence for that. See, for example, Wieland JIMF 1996, "Monetary policy targets and the stabilization objective ..." for an early study of EMS crisis and potential benefits and costs of a common currency and monetary policy. Of course, the relative improvement or loss relative to what existed pre-EMU likely differs across countries. On the other side, common monetary policy may help in improving credibility and independence of the monetary authority, and there by to maintain a low average inflation. That was an argument for some to join EMU. Recall "The advantage of tying one's hands .." Giavazzi-Pagano, EER 1988.
Harris Dellas University of Bern Strongly agree Very confident
Michèle Tertilt Universität Mannheim Neither agree nor disagree Confident
Mario Forni Università di Modena Agree Very confident
Charles Nolan University of Glasgow Agree Very confident
Simon Wren-Lewis University of Oxford Strongly disagree Very confident
Excess inflation in the periphery and German cost undercutting were both a result of the Euro, and both have had serious consequences. The SGP and fiscal compact that are part of the Euro architecture have destabilised the whole Union (apart from Germany) since the GFC. The Euro was used as a weapon to extract resources from Greece in 2015. I think all of this is down to a badly designed monetary union rather than the Euro itself, but it can hardly be labelled a success.
Lucio Sarno Cass Business School Strongly agree Confident
Philippe Martin Sciences Po, Paris Neither agree nor disagree Confident
It depends a lot for which countries and the benefist have been less than expected. For some countries the cotsts have been larger than the benefits but this does not imply that they should exit there are also large costs to leave.
Ramon Marimon European University institute and UPF-BarcelonaGSE Agree Very confident
The main cost has been the euro crisis, which could have been managed better, but not by having 'stressed countries' with their own currencies, even if not having benefited from low euro interest rates they probably would have not accumulated so much debt.
Ricardo Reis London School of Economics and Columbia University Agree Very confident
The space is too short to list all the benefits and cost, let alone to quantify them them against each other. I agree especially with this being the right time, with the crisis behind, and European reform ahead, to have a serious reflexion and analysis of the benefits and costs of the euro today. We have data now, and understand better than 30 years ago what the more relevant issues. Expanding the euro by itself without thinking hard about the current flaws in the monetary union (noticeably, the lack of a safe European asset) might well make things worse in the future, even if overall the euro has had more benefits than costs on the past.
Franck Portier Toulouse School of Economics Agree Very confident
Claudio Michelacci EIEF Strongly agree Extremely confident
Philippe Bacchetta Université de Lausanne Agree Confident
Cédric Tille The Graduate Institute, Geneva Disagree Confident
The euro as is, without a larger redistribution system, carries a big cost in lost autonomy.
Wouter Den Haan London School of Economics Neither agree nor disagree Confident
This is a difficult question for two reasons. First, one has to weigh benefits such as facilitating trade and financial flows against the costs such as loosing currency depreciation as a possiblity to improve competitiveness. I would put much emphasis on the latter because this cost can be more severe and serious economic costs for some outweighs some benefits for others. Second, we do not know the counterfactual. I would not be surprised that there also would be severe crises in the eurozone periphery countries without the euro. After all the euro was created because the alternatives are also problematic. Just imagine a situation in which the periphery countries have their own currency but cannot issue debt in their own currency when economic conditions deteriorate.
Alan Sutherland University of St. Andrews Agree Not confident
David Cobham Heriot Watt University Agree Confident
There have been and are significant benefits - better monetary policy for many countries, lower transactions costs, a more stable external exchange rate, etc - but the way the Eurozone has been operated has also imposed significant costs, notably since 2010-11. However, it should be possible to eliminate those costs without losing the benefits.
Michael Wickens Cardiff Business School & University of York Strongly disagree Very confident
Benefits for Germany and economies like Germany's but huge costs for Greece, Ireland, Italy, Spain and Portugal. Due to these disparities the euro is not fit for purpose and is probably not sustainable unless all economies become like Germany. This is why it makes sense for Juncker to try to impose German rules on all countries. This is the crucial point of Juncker's speech, not the euro. It also presages political integration in order that countries have a say in setting up and monitoring the rules. The euro is the tail wagging the dog - as intended by the architects of the EU. Ultimately it is all or nothing. So Juncker is correct.
Evi Pappa European University institute Agree Very confident
The main argument of the opponents of the euro is that with the adoption of the euro many members have lost competitiveness and monetary policy independence. Yet, it was not the euro per se that lead to losses, but the ineffective use of the extra capital and the surge in public sector jobs and wages. Again, the adoption of policies promoting labor market and product market flexibility is a key step in the future of the Euro area. The euro in fact has reduced inflation, fostered trade, and increased productivity, especially in the European Periphery. Moreover, the euro and the strong commitment it carries, has provided smaller European countries with political stability and has made the European market less vulnerable to noise shocks and political uncertainty at the global level.
Fabio Canova BI Norwegian School of Management Neither agree nor disagree Confident
Thorsten Beck Cass Business School Neither agree nor disagree Confident
The benefits have been unequal across the currency union. I would have answered confidently with yes, if the currency union had been restricted to a set of core countries and/or had been accompanied by convergence in other areas (banking union, fiscal union).
Per Krusell Stockholm University Disagree Confident
The sovereign debt crisis in Europe would have been made simpler without the euro.
John VanReenen London School of Economics Neither agree nor disagree Confident
The Euro has had benefits, especially for core countries. But for peripheral countries the effect has been adverse as exemplified by Greece where an extreme adverse shock could not be partially offset by exchange rate flexibility. In the absence of great labor mobility and larger fiscal transfers from the rest of the EU, the hit on real incomes in Greece was extremely hard and destabilizing.
Gernot Müller Eberhard-Karls-Universität Tübingen Disagree Confident
Mirko Wiederholt Goethe University Frankfurt Neither agree nor disagree Confident
Giuseppe Bertola Università di Torino Agree Confident
Answer depends, not only on different countries and what else is going on, but also on how it is used and what else comes with it. For the typical continental European country a decently configured euro is better than the alternatives.
Andrew Mountford Royal Holloway Neither agree nor disagree Not confident
This depends very much on your view of what the future would look like if European states did not co-operate (i.e. pool their sovereignty) on macro matters (defence, tax , money, tariffs, market regulation). The more apocalyptic your view of this possible future, the more you will believe that the costs of cooperation are outweighed by the benefits, whatever your criterion function.
Costas Milas University of Liverpool Neither agree nor disagree Not confident
This is the type of question that if I were to ask my own students, the external of the exam paper would definitely "shoot me down". We really need to narrow this down to particular aspects of the Euro...
Robert Kollmann Université Libre de Bruxelles Strongly agree Extremely confident
The Euro is essential for the project of ever closer economic and political integration between the member states. That project is vital for the prosperity and welfare of Europe, and for its influence in the world. So, yes, the benefits of the Euro far outweigh the costs.
Jim Malley University of Glasgow Agree Confident
Panicos Demetriades University of Leicester Strongly agree Extremely confident
The skepticism about the Euro is understandable when one looks at the common currency in purely economic terms, benefits and costs. It is only when we start taking into account the political benefits of bringing 19 diverse countries in Europe closer together, building bridges and shared understanding, embedding peace and cooperation in the psyche of European citizens, that the cost benefit analysis becomes clearer. One needs to look at the costs of two world wars to begin to appreciate the rewards from peace and cooperation. Yes, there are economic costs to bringing divergent economics miles together but in no way are the economic costs larger than the political benefits of peace and cooperation. It's time the economic mica profession wakes up to political realities.
Francesco Caselli London School of Economics Strongly agree Very confident
Gino A. Gancia CREI and Universitat Pompeu Fabra Agree Confident
Fabrizio Coricelli Paris School of Economics Disagree Not confident
Hard to find a relevant counterfactual. Moreover, we lack good analytical work to assess the benefits and costs of the eurozone. 60 years after Mundell's contribution on currency areas, the profession has made little progress on the topic. Not surprising, if we consider that most contemporary macroeconomics relates to closed economy models calibrated or estimated on US data. Moreover, hard to disentangle the effects of the common currency from the effects of the specific, and potentially flawed, architecture of the euro.
Jan Eeckhout University College London Strongly agree Very confident
Roger Farmer University of Warwick Disagree Confident
Most countries have benefited from membership of the Euro at some point in time. Some countries, Greece is an example, are currently paying a substantial cost from their inability to devalue. The Euro is an unstable arrangement that will not last unless the members of the Euro area are able to forge a closer political union. This is less likely, the more countries adopt the currency.
Jürgen von Hagen Universität Bonn Strongly disagree Extremely confident
It has had advantages for some and disadvantages for others. For the group as a whole, the economic advantages have been close to zero at best. But the political damage caused by the euro has been enormous. Without the euro, we would not have had the government debt crisis, the management of which has revived Franco-German political deals and intergovernmentalism and weakened the EU's own political institutions.
Sylvester Eijffinger CentER, Tilburg University Agree Very confident
In the long run the benefits of euro membership exceed the costs but this doesn't have to be the case in the short run. The convergence criteria set in the Treaty of Maastricht are necessary but not sufficient conditions for euro membership. The decision to join shouldn't be an automatic one.
David Miles Imperial College Neither agree nor disagree Not confident
By "the euro" do we mean the euro as it is with all the current countries that adopt it? There may well be a subset for which leaving is optimal, and for the remainder "the euro" may well have benefits over free floating of al EU currencies.
Jonathan Temple University of Bristol Disagree Confident
Tim Besley London School of Economics Disagree Confident
There are gainers and losers so it depends a bit on which country's perspective one takes. Germany gets the kind of currency that was infeasible with the Deutchmark. But it destroyed a vital economic adjustment mechanism for some of the economically weaker countries.
Alexander Ludwig Goethe University Agree Very confident
Roel Beetsma University of Amsterdam Agree Very confident
the euro has in particular beneficial effects on trade and financial market integration. Estimates vary, of course, but I believe that overall positive effects are found on account of these two
Ugo Panizza The Graduate Institute, Geneva (HEID) Agree Not confident
Kevin Hjortshøj... Oxford University Disagree Very confident
Interest rates were completely inappropriate for the periphery in the run-up to the crisis. What happened in Cyprus and Greece is indefensible.
Jean Imbs Paris School of Economics Strongly agree Extremely confident
Philip Jung University of Dortmund Neither agree nor disagree Not confident
Sean Holly Cambridge University Disagree Confident
Joseph Pearlman City University London Neither agree nor disagree Very confident
Transactions costs have obviously been lower, but one interest rate for all is never going to be ideal unless, as in the US, there is fiscal federalism.