Does the Eurozone need a fiscal capacity?

Inhaltsverzeichnis (Table of Contents)

• 1. Introduction
• 2. The optimal currency area theory
• 2.1 Automatic adjustment under a flexible exchange rate regime
• 2.2 Wage flexibility
• 2.3 High factor mobility
• 2.4 Financial market integration
• 2.5 The degree of economic openness
• 2.6 Similarities in institutions
• 2.7 Diversification in production and consumption
• 2.8 Similarities in inflation rates and preferences
• 2.9 Political integration and political feasibility
• 2.10 Fiscal transfers
• 3. Selected issues on the Eurozone and optimal currency area criteria
• 3.1 Business cycle convergence
• 3.2 Inflation differentials
• 3.3 Current account imbalances
• 4. Rationale and options for a fiscal capacity in the Eurozone
• 4.1 Packs, compacts and mechanisms – steps taken so far
• 4.1.1 Effect on business cycle convergence
• 4.1.2 Effect of efficacy on inflation differentials
• 4.1.3 Effect of efficacy on current account deficits
• 4.1.4 The Banking Union and its contribution to business cycle convergence
• 4.2 Automatic stabilisers
• 4.2.1 Estimation utilising macro models
• 4.2.2 Estimation utilising micro models
• 4.2.3 The case for an EMU-wide automatic stabiliser
• 4.3 European Tax-benefits system and a European economic agency
• 4.4 Fiscal transfers based on macroeconomic variable
• 4.5 A EMU -wide unemployment insurance
• 5. Conclusion and critical assessment

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This master thesis investigates the necessity of a common budget or transfers mechanism for the Eurozone to effectively manage the challenges associated with a shared currency. It examines whether the Eurozone requires a fiscal capacity to address these issues.

• The optimal currency area theory and its relevance to the Eurozone.
• An analysis of the Eurozone's economic imbalances, including business cycle convergence, inflation differentials, and current account deficits.
• The effectiveness of existing fiscal mechanisms in the Eurozone.
• Potential options for establishing a fiscal capacity, such as automatic stabilisers, European tax-benefits systems, and a Eurozone-wide unemployment insurance.
• The potential benefits and challenges of implementing a fiscal capacity in the Eurozone.

Zusammenfassung der Kapitel (Chapter Summaries)

Chapter 2 explores the optimal currency area theory, examining the conditions necessary for a successful monetary union. It investigates how fiscal transfers can contribute to managing idiosyncratic shocks within the Eurozone.

Chapter 3 analyzes the economic imbalances within the Eurozone, focusing on business cycle convergence, inflation differentials, and current account deficits. It compares these imbalances to those of the United States, a long-standing and comparable monetary union.

Chapter 4 delves into the rationale and options for establishing a fiscal capacity within the Eurozone. It examines the effectiveness of existing fiscal mechanisms and explores potential avenues for creating a more robust system, including automatic stabilisers, European tax-benefits systems, and a Eurozone-wide unemployment insurance.

Schlüsselwörter (Keywords)

This master thesis focuses on the Eurozone, fiscal capacity, optimal currency area theory, business cycle convergence, inflation differentials, current account imbalances, automatic stabilisers, European tax-benefits systems, and Eurozone-wide unemployment insurance. It examines the effectiveness of various fiscal mechanisms and potential options for establishing a more robust system to address economic challenges within the Eurozone.