Edited by Thomas Oatley and W. Kindred Winecoff
Chapter 23: The EU and the euro
European Economic and Monetary Union (EMU) began on January 1, 1999, and many praised its successful first decade. The global financial crisis demonstrated the fragility of the system of economic governance supporting monetary union, however, leading the European Union (EU) and euro area to undertake numerous reforms to strengthen its governance structure. The goal of this chapter is to offer a critical evaluation of the evolution of EMU. The roles of Germany's structural position in monetary integration, its macroeconomic ideas, and its material interests are highlighted to demonstrate how German preferences have been decisive in the institutional design of monetary union, both the original design under the Maastricht Treaty as well as the revised governance structure after the sovereign debt crisis erupted in 2009. The first part of the chapter takes a brief look at the history of fixed exchange rates in the EU from a political economy perspective, using ideas from constructivism, liberal intergovernmentalism and domestic political explanations. The subsequent section examines the institutionalization of the lessons from exchange rate cooperation to monetary union. Next is an analysis of the failings of EMU that were revealed by the global financial crisis and sovereign debt crisis. The chapter concludes with a consideration of the effort to create a more robust economic and monetary union and the extent to which this exhibits continuity with the previously established patterns.
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