ABSTRACT

This chapter develops a post-Keynesian alternative model of EMU that is based upon Keynes’s proposals for an International Currency Union (ICU), and adapted them to the particular circumstances faced by the Eurozone. The present focus upon a single currency, rather than consideration of the benefits of a common currency, means that the current system finds it difficult to restore internal trade balance. Those nations running trade deficits, within the single currency, are forced to deflate and cut the labour/social wage in an attempt to restore trade balance, which places an unequitable asymmetric burden upon the weaker members of the Eurozone and implies a deficient level of demand within the system as a whole. The alternative ICU common currency approach would introduce a more symmetrical treatment of trade balance adjustment, covering both deficit and creditor nations, but it would do so whilst maintaining a level of aggregate demand across the Eurozone sufficient to maintain full employment. The ICU approach would therefore provide a superior basis for the long-term objectives of the EU, namely for a more stable form of EMU to encourage a deeper economic integration between participating member states, that would promote full employment and economic growth, and be consistent with the building of a vision of a social Europe.