The European Integration and its International Dimension: An Introduction.

• Author: Kolev, Galina

Almost 20 years after the onset of the currency union, the European Integration remains challenging for certain member states. The severe economic crisis in the last nine years has put the fundaments of the European Union (EU) in doubt. Still, it has given answers to many questions that would not have been put without the severity of the ensuing deep recessions and the high burden of unemployment in some EU countries. The warnings of the literature on optimum currency areas were pulled out of the hat but they offered rather an alert than a realistic solution to the issues endangering the further existence of the currency union. While the crisis exposed weaknesses in these regards, it also fostered reforms that improved the optimum currency area conditions of the euro area (Matthes/Iara, 2017). However, the lack of a lender of last resort made the stressed and often highly indebted countries an easy prey for self-fulfilling prophesies. At the height of the financial markets' panic, it was all about psychology and less so about economy. A promise, a speech, a commitment--this is what was needed to save the euro. Only three words by Mario Draghi, "Whatever it takes ...", were sufficient to calm the markets and gain time for reforms to take effect (Matthes, 2015). Monetary policy turned into a captive of low inflation and temporarily also fear of deflation. Its effect on real activity of the whole currency union was substantially dampened since the member states' economies reacted very heterogeneously to lower interest rate and unconventional monetary policy measures (Boeckx et al., 2017, Burriel and Galesi, 2018, Georgiadis, 2015). Recent research by Burriel and Galesi (2018) shows that especially countries with more fragile banking systems seem to benefit the least from unconventional monetary policy measures--especially in terms of output gains. The business cycle in the EU still exists and even though this time is different, it will come to an end. It remains to be seen if Mario Draghi will be the ECB president who will go down in history by having killed the interest rate as a monetary policy instrument.

But why is it so difficult to coordinate policies and to assure fiscal discipline--as required by the commitment to be part of the project called European monetary integration in order to assure the stability of the monetary union? And still, it delivers plausible explanations, even in cases when they are not comfortable at all. Because...