Working Paper: CEPR ID: DP2956
Authors: Richard Portes
Abstract: This Paper considers how the European Union, and more specifically the euro area, can contribute to international financial stability. It sets the issues in the broader framework of financial globalization and international capital mobility. Sections 1-3 discuss globalization, international financial stability, and current threats to it ? notably, potential crises in key emerging market countries and a possible ?hard landing? for the US dollar. In that context, EMU has clearly increased internal stability in the euro area and has promoted a dynamic development of capital markets. But in some respects, monetary union may have exacerbated systemic risks. Section 4 discusses financial supervision and regulation and procedures for dealing with liquidity crises. Section 5 turns to issues raised by EU enlargement. Section 6 considers aspects of EMU and the international financial system that relate to international financial stability. It stresses the need for coherent European positions on exchange-rate policy, the international financial architecture, and the euro as an international currency.
Keywords: EMU; Euro; Financial Stability; International Currencies; Liquidity Crises
JEL Codes: F02; F33; F36; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EMU (F36) | internal stability within the euro area (F36) |
| internal stability within the euro area (F36) | dynamic development of capital markets (O16) |
| EMU (F36) | systemic risks (F65) |
| emerging market crises (G01) | euro area’s stability (F36) |
| hard landing of the US dollar (F31) | euro area’s stability (F36) |
| euro area’s exposure to emerging markets (F36) | potential financial distress (G33) |
| lack of coherent European positions on exchange rate policy (F33) | euro's role as an international currency (F33) |