Journal Article

At the crossroads: the euro and its central bank guardian (and saviour?)

Jörg Bibow

in Cambridge Journal of Economics

Published on behalf of Cambridge Political Economy Society

Volume 37, issue 3, pages 609-626
Published in print May 2013 | ISSN: 0309-166X
Published online April 2013 | e-ISSN: 1464-3545 | DOI: https://dx.doi.org/10.1093/cje/bet004

More Like This

Show all results sharing these subjects:

  • Monetary Policy, Central Banking, and the Supply of Money and Credit
  • Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
  • History of Economic Thought (1925 onwards)

GO

Show Summary Details

Preview

This paper investigates the role of the European Central Bank (ECB) in the (mal)functioning of Europe’s Economic and Monetary Union (EMU), focusing on the German intellectual and historical traditions behind the euro policy regime and its central bank guardian. The analysis contrasts Keynes’s chartalist conception of money and central banking with the peculiar post-World War II German traditions nourished by the Bundesbank and based on a fear of fiscal dominance. Keynes viewed the central bank as an instrument of the state, controlling the financial system and wider economy but ultimately an integral part of, and controlled by, the state. In contrast, the ‘Maastricht (EMU) regime’ (of German design) positions the central bank as controlling the state. Essentially, the national success of the Bundesbank model in pre-EMU times has left Europe stuck with a policy regime that is wholly unsuitable for the area as a whole. But regime reform is complicated by severely unbalanced competitiveness positions and debt-overhang legacies. Refocusing the ECB on growth and price stability would have to be a part of any solution, as would refocusing area-wide fiscal policy on growth and investment.

Keywords: Central banking; Bundesbank; Ordoliberalism; Economic and Monetary Union; Euro crisis; B22; E58; E61; E65

Journal Article.  9542 words.  Illustrated.

Subjects: Monetary Policy, Central Banking, and the Supply of Money and Credit ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook ; History of Economic Thought (1925 onwards)