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Euro Crisis and the Future of the Euro : A Bump in the Road or Existential Failure?

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Title: Euro Crisis and the Future of the Euro : A Bump in the Road or Existential Failure?
Author(s): Marjomaa, Anni
Contributor: University of Helsinki, Faculty of Social Sciences
Degree program: Master's Programme in Global Politics and Communication
Specialisation: Global and Political Economy
Language: English
Acceptance year: 2020
This thesis aims at developing plausible visions of future for the eurozone, based on a literature review and scenario methodology. The starting point of the analysis is the global financial crisis of 2008, which turned into a European balance-of-payment crisis in 2010. In the early 2020, COVID-19 pandemic ushered in a new crisis for the eurozone. The survival of the euro seems more uncertain than ever before. Thus, it is a timely effort to explore the various theories of the root causes for the troubles of the eurozone. The research question of the thesis is the following. Utilizing scenario methodology, what kind of plausible futures can be envisioned for the eurozone? Is there a viable future for the EMU or is it doomed to fail due to its alleged flaws? What are the conditions in which the eurozone can prosper and the euro to become a well-functioning common currency? The hypothesis is that the future of the eurozone is extremely uncertain without significant social and fiscal reforms. To tackle these questions, various theories and perspectives on the problems of the euro are reviewed. Despite the different views, there seems to be a consensus regarding the fact that the euro has failed in terms of the main objectives of the common currency, namely bringing prosperity and stability through economic integration and accelerating political integration. Quite the contrary, it has worsened the standards of living and created instability and deep political fragmentation across Europe. The thesis utilizes scenario methodology as it is particularly suitable method for examining uncertain contexts. The scenarios are based on a literature review, which is further analysed from the author’s perspective and developed into plausible scenarios for the future. It is argued that scenario methodology is a fruitful way to conceptualize uncertain future and potential shocks it may hold, while producing novel academic insights and interesting research. The scenario-building exercise demonstrates how the different theories and views on how the EMU should be governed and reformed may play out in practice. Each scenario reflects certain school of thought that entails specific elements of reform and governing principles for the EMU. The paper demonstrates that there are conditions in which the euro can survive and even prosper. On the other hand, there are conditions in which the euro is doomed to fail due to its design flaws and lack of social integration within the eurozone. The scenarios in which the EMU prospers include aspects of social integration and banking integration. Vice versa, the scenarios in which the EMU cannot survive are characterized by lack of social and banking integration. The key finding is that for the euro to survive, social integration in Europe must deepen. In other words, any meaningful reform in the eurozone structure requires increased solidarity within the union. There is a growing consensus between leading economists that the most important structural reform would be some level of debt mutualization and restructuring. The second conclusion is the importance of banking integration, which would enhance financial stability in the eurozone through common standards and harmonize the banking regulation between the member states. Banking integration also requires deepening solidarity in the EMU, so it cannot fully realize before social integration moves forward.
Keyword(s): euro EMU skenaario analyysi Euroopan integraatio euro skenaariot

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