Economic Themes (2013) 51 (1) 4, 59-83
Marko Malović, Srđan Marinković
Abstract: After two decades of being a monetary unification gospel, EMU is at a brink of dissolution. The European (Monetary) Union, including its political significance and economic future has been hanging in balance ever since the May of 2010, most recently reaching the very end of the rope. This paper attempted to discern historical and constructional origins of the Eurozone crisis, layers or ingredients of the ongoing peril as well as to identify a short-term technical policy response, necessary for avoiding the imminent break-up of the EMU. Last but not least, the article developed a game theoretical pay-off matrix in order to consider the menu and tentative likelihood of representative agents’ available strategy pairs, that in turn revealed three distinct equilibria, one of which will decisively shape the immediate outlook and ultimate fate of the Eurozone. However, the current pairs in the core vs. periphery pay-off matrix of apparently pursued strategies do not lead to the desirable, superior Nash equilibrium. Out of three bargaining equilibria possible, only two are Nash-stable and only one associated with EMU’s survival. It is hard to say whether the EMU will be lucky and wise enough to weather this crisis. It is easy to say that feasible macroeconomic solutions won’t be pleasing for many of its members.
Keywords: Euro(zone) crisis; BoP imbalances; European sovereign debts; bail-ins; (quasi)fiscal transfers
GET OVER OR GAME OVER: THE RISE AND FALL OF THE EMU
Marko Malović, Srđan Marinković
Abstract: After two decades of being a monetary unification gospel, EMU is at a brink of dissolution. The European (Monetary) Union, including its political significance and economic future has been hanging in balance ever since the May of 2010, most recently reaching the very end of the rope. This paper attempted to discern historical and constructional origins of the Eurozone crisis, layers or ingredients of the ongoing peril as well as to identify a short-term technical policy response, necessary for avoiding the imminent break-up of the EMU. Last but not least, the article developed a game theoretical pay-off matrix in order to consider the menu and tentative likelihood of representative agents’ available strategy pairs, that in turn revealed three distinct equilibria, one of which will decisively shape the immediate outlook and ultimate fate of the Eurozone. However, the current pairs in the core vs. periphery pay-off matrix of apparently pursued strategies do not lead to the desirable, superior Nash equilibrium. Out of three bargaining equilibria possible, only two are Nash-stable and only one associated with EMU’s survival. It is hard to say whether the EMU will be lucky and wise enough to weather this crisis. It is easy to say that feasible macroeconomic solutions won’t be pleasing for many of its members.
Keywords: Euro(zone) crisis; BoP imbalances; European sovereign debts; bail-ins; (quasi)fiscal transfers
