International Monetary Implications of a Germanized Eurozone

This paper explores the implications of the survival of the euro for the international monetary system (IMS). Since the outset of the euro zone (EZ) crisis, a new Berlin-Frankfurt axis is providing leadership in reforming the EZ´s governance. But, in doing so, it is Germanizing EZ peripheral economies. If the process is successfully completed, the EZ would become a more powerful actor in the IMS and the euro would be more attractive for international investors. However, it is unclear if this stronger EZ would be a stabilizing or a destabilizing force for the IMS. On the one hand, a more “German” euro-zone could have a structural current account surplus, and that could be deflationary and problematic. On the other hand, this reborn EZ will be much more inclined to regulate financial markets (following the ordoliberal German tradition) and, to some extent, to manage exchange rates. Finally it is unclear to what extent the EZ would be willing to politically promote the international role of the euro.
Federico Steinberg
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