Through a Glass Darkly: The Political Foundations of Sustainable European Monetary Union

Abstract

1.IntroductionEuropean Economic and Monetary Union (EMU)'s core countries adopted the single currency with their national collective-bargaining entities, which assigned agenda-setting and veto capacities to wage-setters in their export spheres. Labor market politics (Mihăilă and Mateescu, 2017) in the EMU's southern countries, because of their more combative and disunited character, have not been beneficial with regard to wage moderation and low inflation. With higher inflation rates, southern countries swiftly lost effectiveness in their real exchange rates, generating the constant and unsustainable increase of current account deficits compared with the North and the demand for global financing to cover their deficits. (Johnston, 2016)2.Financial and Monetary Stability throughout the Euro ZoneThe monetary union necessitates regulation and substantial cohesion among the members as illustrated by the strategies for "banking union" and "fiscal union" that call for significant political integration by consolidating the entities for democratic harmony and responsibility. The economic advance of the euro zone requires identifying a superior economic stability among the members (Popescu, 2016), wherein creditor economies employ the space applicable to them to maintain economic growth. Adjustment should be more balanced throughout the euro zone. Governments' choices on design, allocation, and resourcing (Pera, 2017a) of the entities set up the background for interinstitutional partnership. Adequate action with respect to the entities was hostage to the resolutions of the member economies that favored them. (Henning, 2017)3.Did Europe's Monetary Union Advantage Its Low-inflation Performers?The growing discrepancies between EMU's northern and southern countries that assisted in accelerating crisis exposure (Nica et al., 2016) within the latter may be grasped by how EMU brought about an asymmetrical arena between economies with wage-setting entities (Nica, 2017) adjusted to low inflation and ones lacking them. Within domestic labor markets, the supply of low national inflation via controlled wage growth is conditional on power dynamics between discordant sectoral concerns. The sheltered sphere's ineffectiveness in supplying wage moderation impacts inflation (Popescu and Bitoiu, 2017) and, via the real exchange rate, global price competitiveness. Inflation-averse central banks multiplied the economic penalties related to substantial wage agreements in sheltered spheres. The transfer of inflated wages onto prices should be neutralized by central banks through monetary tightening with the aim of curbing inflation developments. (Johnston, 2016) (Figures 1-4)4.How Monetary Union Altered Inflation Dynamics in Its Member-statesThe Greek fiscal position, the outcome of a patronage-based political system that cut down tax revenue and increased public spending, generated the euro crisis. …