The euro after quarter of a century: a post-Keynesian perspective

The paper starts by reviewing the post-Keynesian analysis of the formation of the euro, indicating the concerns over the imposition of common fiscal policies across the Economic and Monetary Union (EMU) countries, the likely deflationary effects, and constraints on counter-cyclical fiscal policy. Scepticism was expressed over the role of the European Central Bank (ECB) and its relationships with national governments in terms of the financing of government expenditure and its abilities to achieve a harmonised inflation target across all countries. It is argued that the issues identified by post-Keynesian (and other) authors have haunted the governance of the euro area and in a number of cases and that corresponding policy shifts have intensified these problems. The developments over budget deficits and national debt in the EMU are mapped out. It broadly suggests a tightening of the deflationary nature of the rules, particularly regarding the excessive deficit procedures, and the shift of emphasis from deficit to debt. The adoption of the ‘structural budget’ and its reliance on ‘potential output’ raise further problematics. Section 5 relates to the role of the ECB and monetary policy, and the relationship between ECB and national governments. Section 6 explores the responses of the authorities to the euro and other crises. Section 7 is a concluding section in which we discuss how far our fears on the euro were realised, and the struggles to address issues.