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The article examines the impact of the euro on the political system through contrasting the experiences of eurozone countries with euro outsiders using a historical institutionalist perspective. While following the global financial crisis, many have argued that the homogeneity of rules within the Economic and Monetary Union (EMU) facilitate the rise of populist movements, authoritarian challengers have emerged only outside the eurozone. The parallel application of Rodrik's political economy trilemma and the ordoliberal tradition of the Freiburg school to the EMU provides the theoretical background for explaining this puzzle. A most- similar research design based on the comparative case study of Greece and Hungary is used to uncover the causal processes through which the EMU contributes to the resilience of liberal democracy. It is shown that while the limits on economic policy autonomy strongly hinder authoritarian tendencies within the eurozone even under a populist government, being outside the EMU is a necessary though not sufficient condition for the entrenchment of authoritarian rule. [ABSTRACT FROM AUTHOR]

The Greek crisis has taken a heavy toll on incomes, employment and wealth. It took eight years, three adjustment programmes, one major debt restructuring and three rounds of bank recapitalization to resolve the crisis. Several factors can explain the length and depth of the Greek crisis: policy mistakes, delays, political resistance to the implementation of the required reforms and deficiencies in the Economic and Monetary Union (EMU) architecture. Despite all these, the implementation of a bold economic adjustment programme has eliminated macroeconomic imbalances, improved labour cost competitiveness and reformed various sectors of the Greek economy. The banking system has been restructured and recapitalized and its corporate governance improved. The economy is now recovering; its openness has improved and has started to rebalance towards the tradable, export-oriented sectors. Significant challenges and crisis-related legacies remain: high levels of public debt, nonperforming loans and unemployment. To address these challenges, emphasis must now be placed on implementing the reforms required to speed up the recovery and to accelerate the rebalancing of the economy towards a knowledge-based and export-led growth model. Bold steps should be taken towards the completion of the EMU, by promoting greater political solidarity and fostering risk-sharing. [ABSTRACT FROM AUTHOR]

The adoption of the euro by Southern European states brought into sharp relief the structural problems of their economies, leading to increased deficits in their current transactions. Yet, before the onset of the world economic crisis, the euro had a beneficial impact on the economic growth of these states as a consequence of real interest rates being lower than the euro area average. Since the crisis, the flow of funds to these countries has sharply diminished, resulting in the crisis shock being much stronger in Southern Europe than in the states of the euro area that present small deficits or surpluses in their current transactions. In Southern Europe the euro makes economic fluctuations even more pronounced and the management of recession much harder - to the point where the very cohesion of the euro area is at stake. The fact that real wages in Germany have not experienced an upward trend throughout the 2000s, partly explains Southern Europe's deficit in current transactions. But it also explains the economic tensions that have arisen within the Franco-German axis. The stagnation of German demand has impacted negatively France, whose economic interests are rallying in favour of a 'competitive' exchange rate for the euro, while in Germany a high exchange rate is preferred instead. In the long run, the cohesion of the euro area cannot be guaranteed unless a complete integration of the Economic and Monetary Union is striven for: Through the creation of effective mechanisms to deal with asymmetric shocks as well as the coordination of national economic policies with the aim of reducing national and social inequalities. [ABSTRACT FROM AUTHOR]

The article discusses the impact of the European Union (EU) Economic Governance Reform on the economic status of EU countries. Weaknesses in the EU and policies in terms of ensuring economic stability are caused by various factors including a deficient financial intermediation system, institutional and regulation flaws in the European Monetary Union (EMU). It was found that EMU and the Stability Growth Pact have lacked efforts needed in providing economic support in debt-affected nations such as Greece, Ireland and Portugal.

The Greek bail-out was highly controversial. An oft-heard assessment is that i) the bail-out was a mistake, ii) the political haggling over it was irrational and iii) the bail-out will create a moral hazard problem. Contrary to this view, our analysis suggests that, given EMU's present political-economic set-up, i) the bail-out was unavoidable, ii) the lengthy process of political haggling leading to it was understandable, and iii) the bail-out does not have to be necessarily associated with a future moral hazard problem. Based on our analysis, we suggest that the EMU's institutional design could be improved by establishing 'exit rules' and that bail-outs should be made rule-based. We have based our analysis on a politicaleconomic, game-theoretic model that helps to understand why and how the parties involved in the Greek crisis arrived at the bail-out and on what conditions the final solution depended. The model allows tracing analytically the dynamics of the negotiation processes as well as the conditions and parameters on which the scope and limits of fiscal redistribution in EMU depends. In doing so, we formally take account of the 'negative externality' problem that has been central to policy debates related to the EMU's institutional design and has played an important role in the Greek crisis. However, contrary to the existing literature, we do not only focus on the economic aspects of such negative externality, but also look at where they emanate from and interact with political factors, in particular the dynamics of the political negotiation process within the EMU [ABSTRACT FROM AUTHOR]

We model Greek monetary policy in the 1990s and use our findings to address two interrelated questions. First, how was monetary policy conducted in the 1990s so that the hitherto highest-inflation EU country managed to join the euro by 2001? Second, how compatible is the ECB monetary policy with Greek economic conditions? We find that Greek monetary policy in the 1990s was: (i) primarily determined by German/ECB interest rates, though still influenced by domestic fundamentals; (ii) involving non-linear output gap effects; (iii) subject to a deficit of credibility culminating in the 1998 devaluation. On the question of compatibility our findings depend on the value assumed for the equilibrium post-euro real interest rate and overall indicate both a reduction in the pre-euro risk premium and some degree of monetary policy incompatibility. Our analysis has policy implications for the new EU members and motivates further research on fast-growing EMU economies. [ABSTRACT FROM AUTHOR]

Recently various exchange rate models capturing the dynamics during the transition from an exchange rate arrangement of floating rates into a currency union have been derived. Technically, these stochastic equilibrium models are diffusion processes which have to be estimated by discretely sampled observations. Using daily exchange rate data prior to the Greek EMU-entrance on 1 January 2001, we develop a rigorous estimation procedure. Our estimates point to an increasing interventionist economic policy in the run-up to the Greek EMU entrance. A comparison of this econometric indication with policy information provided (ex-post) by the Bank of Greece (BoG) in its Annual Report 2000 reveals that the BoG indeed pursued such an active policy stance (so-called institutional frontloading strategies). [ABSTRACT FROM AUTHOR]