International master's degree in Security and Diplomacy

One-Year Program Taught in English in Israel

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Head:

Professor Azar Gat
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Program Director:

Ms Sharon Abramovich
Tel: 972-3-6409540
Fax: 972-3-6409515
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Dr. Tal Sadeh

Dr. Tal Sadeh pic

Ph.D., Hebrew University of Jerusalem, International Relations, 2001

Room Number: 535

Tel. 054-5461673

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Website:http://people.socsci.tau.ac.il/mu/talsadeh/

Research Interests

European Union, International Political Economy, Exchange Rates Politics

Professional Affiliations

Dr. Tal Sadeh is currently an assistant professor at the Department of Political Science in Tel-Aviv University.
Earlier he was the Postdoctoral Fellow of the Leonard Davis Institute for International Relations at the Hebrew University of Jerusalem and a postdoctoral fellow at the Watson Institute for International Studies at Brown University.

Dr. Sadeh held various academic teaching positions in recent years and earned experience also as an economist and a foreign exchange dealer. Dr. Sadeh has a Masters degree in Economics and completed his PhD in International Relations at the Hebrew University of Jerusalem. He specializes in European integration and in International Political Economy.

The title of his dissertation was: Reinterpreting Money in Europe – A Dynamic Theory of Regimes. Currently Dr. Sadeh's research agenda focuses on the domestic politics of exchange rates. He is a member of the European Union Studies Association, The Israeli Association of International Studies and the Israeli Association for the Study of European Integration.

Selected Publications

The End of the Euro Mark I: A Sceptical View of EMU
Adjusting to the EMU: Electoral, Partisan and Fiscal Cycles

Who Can Adjust to the Euro?
This is an electronic version of an article published in The World Economy complete citation information for the final version of the paper, as published in the print edition of The World Economy, is available on the Blackwell Synergy online delivery service, accessible via the journal's website at http://www.blackwellpublishing.com/journal.asp?ref=0378-5920 or http://www.blackwell-synergy.com.

Submitted to refereed journals

  • ‘The Surprising Left – A Rational Theory of Partisan Exchange Rate Policy’, American Political Science Review.
  • ‘Hard Currencies for Hard Times – Terror Attacks and the Choice of Monetary Anchors’, Conflict Management and Peace Science.
  • ‘One Money, One Vote? EMU, the Presidency and the Endogeneity of Electoral Cycles’, International Journal of Political Economy.
  • Revise and Resubmit
  • ‘Central Banks’ Priorities and the Partisanship of Exchange Rates’, Journal of Policy Modelling.

Books

  • (2006), Sustaining European Monetary Union: Confronting the Cost of Diversity (Boulder: Lynne Rienner).
  • (1996), The Future Relations between Israel and the European Communities - Some Alternatives (Tel Aviv: Bursi Publications) (co-authored with Moshe Hirsch and Eyal Inbar).

Refereed journals

  • (2009), ‘EMU’s Diverging Micro Foundations - A Study of Governments’ Preferences and the Sustainability of EMU’, Journal of European Public Policy, 16, 3.
  • (2009), ‘Explaining Europe’s Monetary Union – A Survey of the Literature’, International Studies Review, 11, 2 (co-authored with Amy Verdun).
  • (2008), ‘Economic Interests and the European Union: A Catalyst for European Integration or a Hindrance?’, The British Journal of Politics and International Relations, 10, 1, 1-8 (co-authored with David Howarth).
  • (2007), ‘Policies Adjusting to EMU: Idiosyncrasy and Democratic Institutions’, ACES Cases, No. 2007.3. Available at:
  • http://transatlantic.sais-jhu.edu/ACES/ACES_Cases
  • (2007), ‘Legitimacy and Efficiency: Revitalizing EMU Ahead of Enlargement’, Review of International Political Economy, 14, 5, 739-45 (co-authored with Erik Jones and Amy Verdun).
  • (2006), ‘Adjusting to EMU: Electoral, Partisan and Fiscal Cycles’, European Union Politics, 7, 3, 347-72.
  • (2005), ‘Who Can Adjust to the Euro?’, The World Economy, 28, 11, 1651-78.
  • (2004), ‘Israel and a Euro-Mediterranean Internal Market’, Mediterranean Politics, 9, 1, 29-52.
  • (2004), ‘Some Trade Effects of the EMU Process on Israel’, Israel Affairs, 10, 1/2, 156-76.
  • (1999), ‘Israel and the EC - Is a Customs Union Better for Israel than an FTA?’, Israel Tax Quarterly, 26, 103, 27-43 (in Hebrew).
  • (1998), ‘The European Union and Israel - The Customs Union Alternative’, Israel Affairs, 5, 1, 87-108.
  • (1997), ‘The Economic Desirability of Middle Eastern Monetary Cooperation’, The World Economy, 20, 6, 809-27.

Chapters in edited volumes (refereed)

  • (2007), ‘Managing a Common Currency: Political and Cultural Preferences’, in Lars Jonung and J?rgen Nautz (eds.), Conflict Potentials in Monetary Unions (Stuttgart: Franz Steiner), 131-156.
  • (2004), ‘Some Trade Effects of the EMU Process on Israel’, in Efraim Karsh (ed.) Israel: The First Hundred Years - Volume IV Israel in the International Arena (London: Frank Cass), 156-176.
  • (2001), ‘Disequilibrium’, in R. J. Barry Jones (ed.), Encyclopedia of International Political Economy (London: Routledge).
  • (2001), ‘Benign Neglect’, in R. J. Barry Jones (ed.), Encyclopedia of International Political Economy (London: Routledge).
  • Edited volumes (refereed)
  • (2008), ‘Economic Interests and European Integration’, The British Journal of Politics and International Relations, 10, 1 (special issue co-edited with David Howarth).
  • (2007), ‘Europe’s Expanding Currency: Fiscal Stability and Democratic Legitimacy’, Review of International Political Economy, 14, 5 (special issue co-edited with Erik Jones and Amy Verdun).

Chapters in edited volumes (not refereed)

  • (2007), ‘The EU, Israel and Lebanon: The Political Economy of Post-War Reconstruction’, in Roby Nathanson and Stephan Stetter (eds.) The Middle East Under Fire? EU-Israel Relations in a Region Between War and Conflict Resolution (Tel Aviv: Friedrich-Ebert-Stiftung) 166-93.
  • (2007), ‘Taking Stock of the Action Plan: An Israeli Perspective’, in Roby Nathanson and Stephan Stetter (eds.) The Middle East Under Fire? EU-Israel Relations in a Region Between War and Conflict Resolution (Tel Aviv: Friedrich-Ebert-Stiftung) 29-36.
  • (2004), ‘The Potential for Anchoring MNMCs to the Euro Block’, in Peter Xuereb (ed.) The European Union and the -Mediterranean - The Mediterranean’s European Challenge - Volume V (Malta: European Documentation and Research Center) 569-93.
  • (2002), ‘Israel and a Euro-Mediterranean Internal Market – A Survey of existing Barriers to Trade and Possible Remedies’, in Peter Xuereb (ed.) Euro-Mediterranean Integration - The Mediterranean’s European Challenge - Volume III (Malta: European Documentation and Research Center), 182-243.
  • (1998), ‘Adjusting to the European Community: A Brief Analysis of the Economic Gains and Problems for Israel‘, in P. Xuereb (ed.) The Mediterranean’s European Challenge, (Msida: EDRC - University of Malta), 127-47 (co-authored with Moshe Hirsch).
  • Other non-refereed publications
  • (2007), ‘Monetary Stability Under Conditions of Corruption and Terror’, The Macro Center for Political Economics, Senate Papers, 308 (in Hebrew).
  • (2006), ‘Appropriate Social Representation versus Cabinet Stabilization in Israel: Lessons from 1990s Europe’, Israeli Institue for Economic and Social research, Senate Papers, 281 (in Hebrew).
  • (2002), ‘A Sustainable EU-CEEC Common Currency? Debt Policies and Domestic Politics as OCA Criteria’, The Helmut Kohl Institute for European Studies Working Papers, 28/2002.
  • (1998), ‘Some Trade Effects of EMU on Israel’, The Helmut Kohl Institute for European Studies Working Papers, 12/98.
  • (1998), ‘‘Israel y la Econom?a Europea‘, Econom?a Exterior, 5, 81-6.
  • (1998), ‘Interest Rates Effects on Trade - EMU and Third Parties’, Institut Europ?en de l’Universit? de Gen?ve - Articles et Conf?rences, 7-1998.
  • (1997), ‘The Economic Desirability of Middle Eastern Monetary Cooperation’, The Helmut Kohl Institute for European Studies Working Papers, 1.
  • (1997), ‘Middle-Eastern Monetary Integration - Institutional Frameworks’, The Helmut Kohl Institute for European Studies Working Papers, 4.

Recent Reviews for Academic Journals

  • 2008    European Union Politics, North American Journal of Economics and Finance, Political Studies, Review of International Studies.
  • 2007    European Union Politics

The End of the Euro Mark I: A Sceptical View of EMU

The End of the Euro Mark I: A Sceptical View of EMU

 Forthcoming in Hubert Zimmermann and Andreas Dür (eds) (2012) Can the European Union Survive? Controversies on the Future of European Integration. Houndmills, Basingstoke: Palgrave.

Tal Sadeh

Introduction

Between December 2009 and May 2010, and again in the Fall, Irish, Portuguese, Spanish and especially Greek sovereign debt faced huge pressure in the markets, as default risk, once unthinkable, began rising. The 1992 Maastricht Treaty, which established Economic and Monetary Union (EMU) in Europe, specifically ruled out mutual guarantees for member governments' debts ('bail-outs'). However, until 2009 many investors seemed to assume that economic interdependence among the member states will compel governments to do just that when crisis hits. This assumption was put to the test, as European governments rushed to offer increasing amounts of loan guarantees, with the help of the International Monetary Fund (IMF). A Greek bail-out was followed by Irish, Portuguese and yet again Greek bail-outs. Social protest erupted in these countries at the austerity and reform measures imposed by the governments, as part of the loans' conditions. In the summer of 2011 even major member states came under pressure, in response to inconsistent Italian budget policy and concerns that the French government would not be able to fulfil its commitments to rescue the other member states. Political unrest grew in Germany at the prospect of seemingly endless rounds of bail-outs. These developments reminded everyone how difficult EMU is to sustain. Economically inconsequential, and indeed quite costly to some member states, and with little domestic political support to pay its increasingly transparent price, the fate of EMU is argued here to hang on its merits for Franco-German relations. This is why in the next few years the euro area as we know it is expected to dissolve in favour of a new common currency without some of the peripheral member states, but with an ever more committed core.

 

The Economic Costs of EMU

From a viewpoint of economic efficiency EMU involves a trade-off between microeconomic gains and macroeconomic costs. The gains are potentially derived from expanded trade in goods and services following the elimination of the trade barrier inherent in exchange rate fluctuations and currency conversion costs. However, the establishment of the euro area increased trade in goods among its member states by no more than a cumulative 10-15 per cent until the mid-2000s, and little more trade creation can be expected in the future as a direct effect of the euro. Even this small effect is suspected as an overestimation because it is difficult to separate the effect of the Single Market from the effect of the single currency. And the effect of the euro on trade in services, which form an increasing share of output in the euro area, and are responsible for a great majority of jobs, remains obscure. Indeed, given the political difficulties in liberalizing trade in services in the EU little can be expected here. Neither can the euro be credited with price convergence in Europe, which is an indicator of trade-driven competition, because most of it is the result of the Single Market. As of yet, ten years after its launch, there is no evidence that the euro brought large economic benefits to Europe that could not have been realized without it.

The macroeconomic costs associated with EMU derive from the loss of monetary policy autonomy and the resulting inability to adjust the exchange rate. Outside EMU these policy tools are convenient when growth rates diverge significantly among the member states. For example, a euro-area member state undergoing a recession may want to lower the interest rate or see the euro depreciated, but these measures may not be simultaneously appropriate for another member state undergoing an economic boom. Thus, the costs of EMU are lower if growth rates are synchronized among the member states. Unfortunately the opposite is true for the 2000s (Enderlein and Verdun, 2009). Germany entered the euro area with an overvalued exchange rate but regained competitiveness (and thus exports and growth) through labour market reforms. In contrast Italy (and France) entered with an undervaluation, and lost competitiveness with time. Of the 14 euro-area member states as of 2009, ten (all but Austria, Belgium, Italy and Slovenia) have grown less synchronized with German growth rates in the late 2000s than they were in the 1990s (or Germany became less synchronized with them).

If national growth rates are not synchronized and fiscal and monetary policies are constrained in EMU, it is imperative to remove rigidities and allow market forces a greater influence on prices and wages. However, prices in the euro area are known to change very slowly, because of product and labour-market regulations limiting competition. Unfortunately, reforms in the goods and labour markets in Europe have either slowed after the adoption of the euro, or were unaffected by it. Reforms in the goods market are largely attributable to the drive to complete the EU's Single Market. Substantial wage moderation and erosion of real wages is observed in countries preparing to enter the euro area in the 1990s, but much less so after the adoption of the euro (with the exception of certain countries such as Germany) (Alesina et al., 2010). Following the launch of the euro, all EU member states (with the exception of Austria and Spain) slowed their labour market reforms in areas that enhance national economies' capacity to adjust to recessions.  Within the euro area, Greece has the least liberalized labour market, while Ireland is the most liberalized.

Economic openness can also compensate for the lack of monetary autonomy inherent in euro-area membership. International flows of capital and labour can stimulate a depressed economy. In addition, capital flows restrict a country's ability to set its own interest rate and thus reduce the opportunity cost of adopting the euro, especially in highly open (mostly small) economies (Jones, 2008). Indeed, openness as measured by the ratio of total exports and imports of goods and services to output has increased continuously in most member states, as have capital flows. However, on average such openness is consistently lower in euro-area member states than in non-euro EU member states; within the euro-area it is relatively high in Germany but especially low in Greece, Portugal and Spain. Labour flows are known to be relatively small among EU member states and cannot compensate for the above.

Persistent differences in the rates of price inflation among the member states add to the costs of maintaining the euro area, because industries in high-inflation countries lose competitiveness. During much of the past decade Greece, Ireland, the Netherlands and Spain experienced significantly higher annual inflation rates than the euro area average. Germany, by contrast, has had the lowest inflation. While on average inflation has been consistently falling and converging in the euro area (Greece being an outlier) these differences have nevertheless accumulated. As a result, the common interest rate, set by the ECB, has had different effects on the member states' economies, and exacerbated variation in their growth rates (Enderlein and Verdun, 2009).

Difficult Domestic Political Conditions and Rising Adjustment Costs

So from an economic view EMU is at best inconsequential (in that observed processes would have occurred even without it), or worse, a wasteful project. However, the same can be said of many countries with a single currency and poorly integrated regions. Whether economic inefficiencies matter for EMU's sustainability depends on how they feed into the political realm. Every currency union has its winners (who then support membership) and losers (who promote opting out or defection). National policy preferences are shaped by the results of this struggle.

A thorough review of the many interest groups affecting the sustainability of EMU is beyond the scope of this short essay. However, it is relatively simple to predict the positions of a few economic groups in this debate, assuming that a high degree of capital mobility is a global feature that is independent of maintaining the euro. On the anti-euro camp are standard tradable goods' industries, especially if they are locked in an uncompetitive exchange rate. This description currently fits much of the industry in the Mediterranean member states. In addition, companies in import-competing and non-tradable sectors (mostly services to local communities) are probably unhappy with the euro-area's constraints on their government's ability to stimulate local demand (including for their products). The growing importance of the service sector and the difficulties (discussed above) of freeing trade in services in the EU (which keep them less tradable than they could be) are bad omens for the euro.

Many important economic groups may be ambivalent or indifferent about the euro. Large multi-national corporations are built to handle complicated country risks and manipulate prices, and in fact, their multi-national activities hedge them against currency swings. Companies with innovative products compete mostly over the quality of their products, much less over prices; hence they may be indifferent about the euro. Banks and other financial institutions hold assets that are sensitive to currency risk, but they also profit from trading in such risk. Broadly, banks cheer for policies that help their customers repay their loans, so they tend to echo the other groups' interests. So who is solidly in the pro-euro camp? Exporters should be supportive, to the extent that they are concerned of competitive devaluations in other member states (devaluations designed to improve a country's trade balance, much like a tariff), but only if the exchange rate is locked at a competitive level. This description currently fits the German industry, which may explain calls in Europe for Germany to aid some of the other euro-area member states. This is a rather narrow basis of domestic support for EMU.

Which interest group has the upper hand in this political contest depends in turn on domestic political institutions. These determine the access different groups have to policymaking, and the resulting aggregation of preferences into policy. Many institutions can be important here, from electoral laws, to legislatures' regulations, labour market regulations, industrial concentration, and others. For reasons of scope only two important institutional features are considered here, the first of which is cabinet duration (that is, how long governments stay in power).

Cabinet duration is important because long-term currency union membership is supported by durable cabinets, which are less sensitive to short-term calculations. Furthermore, when properly instrumented cabinet duration can summarize the effect of a vast array of institutions (Sadeh, 2006b: 95-107). Cabinet duration depends on the length of the democratic experience in each country, whether it is a presidential or parliamentary democracy, the electoral law (whether it is majoritarian or proportional, the size of the legislature and the entry threshold to it),  the laws governing the legislature's work (the legislature's official tenure, whether and how the legislature can be dissolved, the involvement of the head of state (a monarch or a president) in coalition making, and whether no-confidence motions must be constructive), and ethnic, religious and linguistic fragmentation in society. In the 1990s and 2000s cabinet duration was on average higher and rising in member states of the euro area compared with the non-euro member states. This should make EMU more sustainable.

Another important institution is the electoral cycle – unsynchronized electoral cycles among the member states may lead to unsynchronized growth rates, because EU member states manipulate their economies in election years (Sadeh, 2006a). Indeed, over the 1990s and 2000s Germany's elections have roughly coincided with those of other European countries, but there are important exceptions, such as France, Greece and Spain.

The different economic and political factors that affect EMU's costs, as discussed above, are weighted against one another in an index developed elsewhere (Sadeh, 2006b), which indicates the potential magnitude of adjustments required to maintain membership in the euro area. The same estimated equation is used here to produce forecasts with revised data for 1992-1998, and 1998-2004, as well as new forecasts for 2003-2009. Figure 1 reports the adjustment indicator for some of the euro area's member states in relation to Germany, which is an indispensible member state.

Figure 1

This adjustment indicator is on average much higher in 2003-2009 than it was in earlier periods. In 2003-2009 Greece suffered from a combination of relatively low openness, and unsynchronized growth rates (in industrial output) and electoral cycles with Germany. France suffered likewise from low openness and unsynchronized electoral cycles. Ireland and Portugal's problems were mainly low growth rate synchronization and relatively high inflation. The Netherlands surprisingly also saw a deterioration of its growth rate synchronization, as well as falling cabinet duration. Spain's main (though not only) source of trouble is the low synchronization of its electoral cycle with Germany's. In contrast, Finland and Italy have maintained relatively low levels of the adjustment indicator, mostly because of improved growth rate synchronization. As explained above this process is not expected to continue in Italy in the long term, but it is consistent with its ability, at least until very recently, to escape the wrath of the bond markets.

 

Weak Institutions and Ideas, but Strong Franco-German Incentives

Might international institutions raise defection costs and maintain membership in EMU even if it is no longer efficient or beneficial to powerful interest groups? This could happen if exit costs are asymmetrically more expensive than entrance costs, because of the time that has lapsed between entrance and potential exit. During this time integration has perhaps deepened among the member states in the monetary and other issue areas, and political bargains were struck among the member states, spanning a wider range of issue-area linkages. Thus, more would be politically disrupted from an exit than would have been disrupted had the member state not entered the union to begin with. Asymmetric exit cost can also result from highly centralized EU institutions, which would need replication at the national level to enable an exit. Indeed, euro area member states are thoroughly integrated with the EU's institutional infrastructure, its laws, and its policy surveillance and review mechanisms (Heipertz and Verdun, 2010). EMU is one among many other frameworks of integration in the EU (such as a customs union or security cooperation), into which exit costs can spill. By leaving the euro area a member states may suffer diminished reputation and influence in the EU, and relegation to a second league.

However, these arguments may be overstated. For example, it is not clear that the standing in the EU of the UK, Sweden and Denmark would have been significantly enhanced had they joined the euro area. Nor does it seem that their ability to bargain with the other member state and strike cross-issue deals was hampered. As for the centrality of EU institutions, the European System of Central Banks has a federal structure, which makes defection easier than a more centralized system would (Howarth and Loedel, 2005). National central banks were not abolished when the euro was launched, and they retain their own foreign currency reserves. An abrupt exit without due preparation would surely be disruptive, but in essence if a member state is determined to leave the euro area all it has to do is stop taking phone calls from Frankfurt. Likewise, the growing importance in the past decade of the Council of Ministers (the EU's intergovernmental body) relative to the Commission's (its supra-national bureaucracy) bodes ill for the sustainability of the euro area. Indeed, the scepticism of governments of euro-area member states with regard to the authority of EU institutions has become more consensual, to judge by the manifestos of parties in governments (Sadeh, 2009).

EMU can also be sustained by a shared set of beliefs and a strong sense of political community among the member states. Indeed, in their party manifestos governments of euro-area's member states increasingly share core neo-liberal beliefs that underscore EMU (Sadeh, 2009). For example, they are in principle in favour of free enterprise, private property rights, reduced budgets (however difficult this is in practice for them) and a strong currency. However, some of their shared beliefs are inconsistent with the rules of EMU: Support is growing for social cushioning mechanisms (social security schemes or social services such as health service or social housing). And the member states are diverging in their support for microeconomic reforms. Specifically, they are diverging in their attitudes to the deregulation of markets, economic planning by the state, and their commitment to reduce taxes and to encourage competition by acting against monopolies in favour of small business and consumers.

If cognitive infrastructure is insufficiently conducive to a sustainable euro area, perhaps the international distribution of power is. Member states of a currency union often need to rally around a dominant state willing and able to use its influence to ensure monetary co-operation (Cohen, 2000). For example, Estonia was arguably willing to maintain its currency link to Germany for many years as a way of escaping Russian domination. Estonia's situation may be common to other Baltic or small eastern European countries, but is not relevant for many other euro-area member states. Instead, Germany and France have traditionally been at the centre of EU politics, with small western European nations following their lead. And as in the past, so perhaps it is today. Ever since the Cold War ended Germany's influence in Europe is growing and France's is declining. Both countries still need the EU's multilateral organizations and a common currency most prominently, to coordinate their adjustments to this process and reduce its costs. A common currency provides Germany's growth and power with legitimacy and acceptance, and prolongs the halo of France's influence in Europe. A Frnaco-German currency symbolizes this cooperation, and its demise would have great destabilizing consequences in European, and indeed in world politics. It is here where the best argument in favour of sustaining the euro can be found.

 

Conclusions

The economic arguments in favour of a single European currency were overstated from the outset. The existence of different national currencies does not form an important trade barrier in economies with developed financial markets, or world trade would never have developed as it has. With hindsight it is clear that little was gained in terms of trade, synchronization of growth rates and price convergence in Europe that would have not materialized without the launch of the euro. Worse, euro-area membership requires more reform than some member states' politics can swallow. Before the recent global crisis, they did not commit consistently to the imperatives of EMU. The euro area has reduced interest rates on public debt and created more financial space for public spending (Enderlein and Verdun, 2009). Fiscal discipline was weak, and the costs of membership in the euro area were piled into public debt. The global credit boom of the 2000s made this easier.

The euro crisis of 2010 exposed these tensions as never before. In response to the crisis many governments reiterated their commitments to reform and austerity. However, now that the price for staying in the euro is more transparent it is not clear that a strong supportive coalition exists within each and every member state. Social groups that are asked to make great sacrifices for the sake of fiscal stability may wonder whether leaving the euro is indeed worse for them than staying in. All the more so if they perceive that other groups gain more from membership in the euro area, but are asked to sacrifice less. Time will tell whether the recent reform efforts are credible and adequate, and whether austerity will not plunge some member states into spirals of falling output and rising deficits. No matter how preferences are aggregated in the different member states, policymaking cannot be forever isolated from the interests of EMU's losers. EU institutions cannot prevent a determined member state from leaving the euro, and even a country determined to stay in the euro area may be pushed out of it by sceptical bond markets. Some of the member states whose membership is more expensive to maintain, will have to leave the euro area at some point. Of course, departing from the club would be extremely costly for them (Eichengreen, 2010), but staying in may be costlier still, at least for those who suffer from ever harsher austerity packages. Any departure from the euro area would probably occur under conditions of crisis, as in liberalized markets such a move cannot be managed in a tranquil manner. A departure by one member staes might very well set off a domino effect, and it is not clear which country will be the last piece to fall.

That being said, for as long as France and Germany are interested, a common currency between them will survive. Whichever member states remain in the club would have to regain the credibility of their commitment (especially in the wake of a major crisis) by giving up more of their sovereignty (such as the final dismantling of national central banks). This can be achieved by launching a new currency. Call it the Euro Mark II.

References

 Alesina, A., S. Ardagna and V. Galasso (2010) 'The Euro and Structural Reforms', in A. Alesina and F. Giavazzi (eds), Europe and the Euro (Chicago: University of Chicago Press): 57-93.

Cohen, B. (2000) 'Beyond EMU: The Problem of Sustainability', in B. Eichengreen and J. Frieden (eds), The Political Economy of European Monetary Unification (Boulder: Westview Press): 179-204.

Eichengreen, B. (2010) 'The Breakup of the Euro Area', in A. Alesina and F. Giavazzi (eds), Europe and the Euro (Chicago: University of Chicago Press): 11-51.

Enderlein, H. and A. Verdun (2009) 'EMU's Teenage Challenge: What Have We Learned and Can We Predict from Political Science?', Journal of European Public Policy 16(4): 490-507.

Heipertz, M. and A. Verdun (2010), Ruling Europe: The Politics Of The Stability And Growth Pact (Cambridge: Cambridge University Press).

Howarth, D. and P. Lowedel (2005) The European Central Bank: The New European Leviathan (Baskingstoke: Palgrave).

Jones, E. (2008) Economic Adjustment and Political Transformation in Small States (Oxford: Oxford University Press).

Sadeh, T. (2006a) 'Adjusting to EMU: Electoral, Partisan and Fiscal Cycles', European Union Politics 7(3): 347-72.

Sadeh, T. (2006b), Sustaining European Monetary Union: Confronting the Cost of Diversity (Boulder: Lynne Rienner).

Sadeh, T. (2009) 'EMU's Diverging Micro Foundations – A Study of Governments' Preferences and the Sustainability of EMU', Journal of European Public Policy 16(4): 545-63.

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