The theoretical basis of the euro area comes from the theory of "optimal currency area". Whether the "Optimum Currency Area" (OCA) proposed by Mundell (1961) is in line with the current situation of the euro area has always been the focus of academic debate. Embarrassingly, some scholars believe that in the euro area, only the most core countries, that is, those with the strongest economy (such as Germany, France, the Netherlands, Belgium, Denmark and Austria), are eligible to form the most powerful group. Excellent currency area (Bayoumi and Eichengreen, 1997). As for Teletubbies such as Italy, Spain, Portugal and Greece, economists smiled wryly and shook their heads. The following remarks are blocked for 500 words because of political incorrectness. That being the case, then the question arises: What is the Eurozone? In fact, this question has long been in the realm of science fiction. Conceptually, it cannot be denied that the euro zone has some OCA attributes.
But this is like the intimate reminder on the instant noodle package: "This pattern is for reference only, and the actual content refers to the real object." The problems of the euro area, to a large extent, come from the mismatch between the OCA and the current number list situation of the euro area. So the answer to whether the Eurozone is an OCA is actually quite simple: two words, no. To become an OCA, several conditions must be met. First, countries must have similar but diverse production and export structures, which is called the Kenen criterion, proposed by Peter Kenen (1969). Second, the economies of these countries must be open. There must be substantial trade and investment relationships between them, which is called the McKinnon criterion, proposed by Ronald McKinnon (1969). Again, countries need to have similar GDP and income structures. Moreover, Mundell himself proposed that there must be freedom of movement of labor between countries (Mundell, 1973).
While maintaining the elasticity of labor costs. Finally, and most importantly, countries must share the same values and goals to ensure consistent actions, and there will be no cases of free fights and accusations on the Internet. In addition, it is desirable that financial systems between countries also have a high degree of similarity. (J. Ingram, 1969) The current academic consensus is that the euro area simply does not meet the above conditions. Including professors Tom Verbeke and Filip Abraham of the University of Leuven believe that the euro zone should shrink. As a result, the euro zone has suffered a lot for its own shortcomings. "Say no to the EU!" - RTX1I5AG Photo Credit: Reuters / Dazhi Image When European pig countries can't borrow money, the European Central Bank starts a wonderful performance Before the financial tsunami, the national debts of countries in the euro area were highly correlated, with the correlation coefficients almost all above 98%. This means that national government bonds of various countries are regarded as substitute assets (Substitute) to each other.