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Post-COVID-19 EMU: Economic Distancing by Parallel Currencies
Thomas Mayer1, Gunther Schnabl2
1Flossbach von Storch Research Institute, Ottoplatz 1, 50679 Köln, Germany.
Inter Economics
|December 7, 2020
Summary
The European Economic and Monetary Union faces challenges from the coronavirus crisis. This study suggests parallel currencies to boost southern European competitiveness and restore economic adjustments.
Area of Science:
- Economics
- Monetary Policy
- European Economic Integration
Background:
- The coronavirus crisis exacerbated economic disparities within the European Economic and Monetary Union (EMU).
- Asymmetric shocks disproportionately affected southern EMU members.
- The absence of nominal exchange rate adjustments under a common currency limited policy options.
Purpose of the Study:
- To propose an alternative policy to financial transfers for addressing asymmetric shocks in the EMU.
- To explore the potential of parallel currencies for facilitating relative price adjustments and enhancing competitiveness.
- To draw lessons from the German monetary union for EMU reforms.
Main Methods:
- Theoretical analysis based on lessons from the German monetary union.
- Economic modeling of parallel currency introduction in the EMU.
- Comparative analysis of financial transfers versus parallel currency systems.
Main Results:
- Parallel currencies can enable real depreciation in southern EMU countries, improving their competitiveness.
- Introducing a parallel currency in Germany could lead to capital inflows and real appreciation.
- This mechanism could reintroduce pre-EMU pressures for structural adjustments and productivity gains.
Conclusions:
- Parallel currencies offer a viable alternative to large-scale financial transfers for managing asymmetric shocks in the EMU.
- This approach can restore mechanisms for real exchange rate adjustments and foster economic convergence.
- The introduction of parallel currencies could enhance the resilience and stability of the European Economic and Monetary Union.
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