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A Post Keynesian Perspective on Twenty-First Century Economic Problems

Edited by Paul Davidson

This book explores key economic problems and new policies for the global economy of the 21st century. The contributors discuss to what extent past policy errors were due to the incompetence of policymakers, and highlight problems including: international payments imbalances and currency crises, volatile security markets, inflation, achieving full employment, income distribution and alleviating individuals and nations of poverty.
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Chapter 3: A critique of the proposal for monetary union in MERCOSUR

Fernando Ferrari-Filho


Fernando Ferrari-Filho INTRODUCTION In 1999, the presidents of the countries of the Common Market of the South, MERCOSUR – Argentina, Brazil, Paraguay and Uruguay – mentioned that the final step of an integration process in this region could be the adoption of a single currency among these countries.1 Based on the theory of optimum currency areas and on the experience of the European Monetary Union, the proposal of a currency union among the MERCOSUR countries aims to (1) create a new framework for economic management to change the style of fiscal policies among governments of MERCOSUR and modify the financial and monetary system of the member countries, as well as (2) prevent new currency crises in the region. In general, the analysis of optimum currency areas shows that fixed exchange rates are more appropriate for countries that are completely integrated. In this context, a country’s decision to join a currency area is determined by the weight of the advantages and disadvantages of having (or not having) fiscal and monetary policies centralized to promote economic integration and cooperation policy. Post Keynesian critique of the theory of optimum currency areas focuses on the ability of member countries to manage fiscal and monetary policies. Thus, for example, countries joining a monetary union lose their ability to implement economic policies to stimulate effective demand and solve unemployment problems. We begin by presenting the main idea related to the theory of optimum currency areas. We show how inconsistent the proposal of creating a currency union among...

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