ABSTRACT
This chapter deals with the euro crisis. The euro problems are the result of three forgotten unions: financial, fiscal and political (Matthijs and Blyth, 2015). The asymmetrical construction of the economic and monetary union (EMU), where monetary union exists without economic union, differs from the model of integrated monetary and economic governance conceived by prominent early thinkers of the EMU. The same monetarist approach underlies the Optimum Currency Areas (OCA) theory, which was rediscovered as a tool to assess the costs and benefits of the monetary union. The euro crisis has been blamed on the 'sudden stop' of capital flows to the periphery. However, the problem was the start as much as the stop. Haldane suggested a different metaphor: the 'big fish small pond' problem. The seeds of emerging market crises are sown in the build-up phase, as inflows overwhelm the absorptive capacity of recipient countries' capital markets.
