Reverse the road: From European Monetary Union to Euroization
| Published date | 01 November 2024 |
| Author | Alban Mathieu,Pierre Funalot |
| Date | 01 November 2024 |
| DOI | http://doi.org/10.1111/1758-5899.13420 |
Global Policy. 2024;15:1015–10 24.
|
1015
wileyonlinelibrary.com/journal/gpol
1 | EUROIZATION AS A
POTENTIAL SOLUTION
With the implementation in Europe of the European
Monetary Union (EMU), policymakers and scholars en-
gaged in debate within their respective field ab out the
opportunity for a countr y to fully euroize as a precur-
sor to later integrating into the European Union (EU)
(Levasseur,2004) (Rochon & Rossi,2003). Simply put,
euroization means that a country abandon s its own
domestic currency to use a foreign currency as l egal
tender and official currency. Concurrently, a similar dis-
course unfolded in regions such as L atin America and
North America. In Latin America, countries grappling
with high inflation and monetary instability deliberated
over adopting the dollar as their official curren cy. In
North America, within the br oader framework of the
North American Union, discussions revolved around
the dollarization of the Canadian economy. While the
political discourse on dollarization or euroization was
robust in the early 2000s, it waned in the l ate 2000s
(Rochon & Rossi,2003).
Despite certain distinctions, particularly in terms
of seigniorage incomes and the capac ity for a central
bank to serve as the lender of last resort (LORL), mon-
etary unions and dollarization exhibit notable similar-
ities. This resemblance has prompted euroizatio n to
be considered a means to integrate into the European
Union (EU). However, the reverse scenario is also plau-
sible: a country may choose to exit while retaining the
euro as its official currency. The question then arises:
What motivates a country to undertake such an ac tion?
The aim of this article is to provide poli cy insights aris-
ing from the potential for a member country par ticipat-
ing in the European Monetary Union (EMU) to exit the
euro area while keeping the euro as its currency. Can
this policy enhance its fiscal po licy autonomy without
incurring a backlash or costs? Consequently, in com-
parison, such a country would pos sess greater maneu-
verability in responding to shocks.
The literature on euroization is traditionally divided
between those expounding the pros and thos e artic-
ulating the cons. Both sides acknowled ge benefits
such as reduced transaction c osts, elimination of cur-
rency risks, and improved monetary stabili ty, leading
to lower interest and inflation rates. While they differ in
their analysis of the costs, there is a shared conc lusion
about the loss of monetary, exchange rate, and fiscal
policies by the euroized country.
Proponents often downplay these costs, arguing that
they diminish with economic convergence, be come
unnecessary because of rational expectations about
inflation, and are hindered by the financialization and
liberalization of capital movements in many countries.
POLICY ANALYSIS
Reverse the road: From European Monetary Union
to Euroization
AlbanMathieu1 | PierreFunalot2
Received: 9 Apri l 2024
|
Revised: 23 July 20 24
|
Accepted: 23 Jul y 2024
DO I: 10 .1111/17 58- 589 9.13 420
This is an open ac cess article under t he terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium,
provided the original work is properly cited.
© 2024 The Author(s). Global Policy published by D urham University and Jo hn Wiley & Sons Ltd.
1Kedge Business School, SEEFAR,
Talence, France
2University of Par is- Nord Sorbonne,
CEPN- CT UMR 7234, Vil letaneuse,
France
Correspondence
Alban Mathieu, Kedge Business School,
SEEFAR, Talence, France.
Email: alban.mathieu@kedgebs.com
Abstract
Euroization is considered as a solution for transitio n economies or as a step
toward later integration into the Economic and Monetary Union (EMU). This
article seeks to challenge thi s conventional trajectory by arguing that a country
already participating in the EMU could o pt for euroization. Instead of adopting
a binary analysis of pros and cons, a moder ate perspective is employed, tak-
ing into account the specific instituti onal setup of Eurozone member countries.
The aim of this article is to unders core the potential advantages of euroization,
positioning it as a strategy that, though limited, can pr ovide greater fiscal policy
space.
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