Introduction
In this lecture, I'll show you several of the costs of joining an EMU, after recapping on the benefits. These costs are all linked around the idea of a loss of potential flexibility in response to a crisis, much like the one we're in right now.
How labour markets react to changes in demand for services, or how currencies are effected when devaluations are not possible, is a secondary concern of this lecture. We'll look at the costs again, very briefly, and develop the criteria for an Optimal Currency Area (OCA) to form. We'll present evidence that the EU almost certainly is NOT an OCA, and discuss reasons for this. Finally, we'll talk about Germany, France, and Ireland's bailout of the banks, and discuss why this was a good idea done for the wrong reason.
Further Reading
Hansen, J.D., European Integration: An Economic Perspective, Oxford University Press, 2001, 1st ed. pgs. 163-189, 337.142 DRU.
Click here to read Mundell's original 1961 article on OCAs. You must be on the college network to read this.
Slides & Handout
Click below to watch the slideshow.
Download the handout by right clicking the image below and choosing 'save target as'.
