FLAWED CURRENCY AREAS AND VIABLE CURRENCY AREAS: EXTERNAL IMBALANCES AND PUBLIC FINANCE IN THE TIME OF THE EURO, di ALDO BARBA AND GIANCARLO DE VIVO (2013)
The main problem discussed in this paper is whether a balance of payments constraint
exists within the Euro area. It is argued that the question of a member state’s
foreign position is still relevant, at difference from what happens in successful currency
areas like the USA, where persistent imbalances in the payments from one district
to another are acceptable and are made sustainable by financial transfers
revolving around the system of taxes and transfers and the public debt. A currency
area is an area where the price of a deposit with the banking system is the same
wherever the deposit is held (i.e. there is uniformity in the value of commercial bank
money). Persistent imbalances in payments between regions within the area are to be
settled in either the common currency or (which is basically the same thing) the
public debt. But while this is acceptable in the USA, it is far from acceptable in the
Euro area, where creditor countries (Germany being by far the most important)
clamour for a settlement in ‘hard assets’, like, e.g. state-owned real estate, if not
gold. This means that a balance of payments constraint still binds state members of
the Euro area, and is a serious threat to its survival.
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