Working Paper: NBER ID: w20242
Authors: Joshua Aizenman
Abstract: This paper looks at the short history of the Eurozone through the lens of an evolutionary approach to forming new institutions. The euro has operated as a currency without a state, under the dominance of Germany. This has so far allowed the euro to achieve a number of design objectives, and this may continue, as long as Germany does not shirk its growing responsibility for the euro's future. Germany's resilience and dominant size within the EU may explain its "muddling-through" approach towards the Eurozone crisis. We review several manifestations of this muddling through process. Greater mobility of labor and lower mobility of under-regulated capital may be the costly "second best" adjustment until the arrival of more mature institutions in the Eurozone.
Keywords: eurozone; euro crisis; institutional evolution; Germany
JEL Codes: F32; F36; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Germany's economic dominance (N14) | stability of the eurozone (F36) |
| lack of institutional maturity (O17) | reliance on labor and capital mobility as adjustment mechanisms (F16) |
| Germany's actions (N44) | eurozone's performance (E66) |
| eurozone's institutional evolution (F55) | economic policies enacted by Germany (E65) |