Chapter 3: Struggling with Constraints

The EMU in its current incarnation incorporates only a fraction of the important automatic stabilisation mechanisms of currency unions and/or federal states that run smoothly. This imposes serious limitations on its members’ ability to respond to severe asymmetric shocks. In countries facing little or no growth, resentment of the currency union and the European Union itself is starting to rise. In this chapter we consider different ways of dealing with the constraints imposed by the incomplete currency union, both cooperative and non-cooperative.