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Quantitative Finance and Economics

2021, Volume 5, Issue 2: 311-324. doi: 10.3934/QFE.2021014
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Research article

Optimal sequencing to reform the European economic and Monetary Union: a roadmap

  • 1.
    ESB Business School, Department of Economics, Alteburgstr, 150, 72762 Reutlingen, Germany
  • 2.
    RRI Reutlingen Research Institute, Reutlingen University, Germany
  • 3.
    IFE Institute of Finance and Economics, ESB Business School, Reutlingen, Germany
  • Received: 28 February 2021 Accepted: 11 May 2021 Published: 13 May 2021

  • JEL Codes: F45, C72, H77, F59

  • In this paper, we examine the political gridlock in reforming the Economic and Monetary Union. We utilize a two–stage game with imperfect information in order to study the optimal sequencing. The main results are: first, optimal sequencing requires for incompliant Member States a default option in stage–two, which in principle is related to the today's fiscal architecture (EMU-I). Second, we show that compliant countries prefer a reform equilibrium today if and only if they have a free choice about the preferred fiscal architecture at the end — either EMU-II with binding European coordination or EMU-I related to Maastricht. Noteworthy, our sequencing approach works for any design of the EMU-II architecture.

    Citation: Bodo Herzog. Optimal sequencing to reform the European economic and Monetary Union: a roadmap[J]. Quantitative Finance and Economics, 2021, 5(2): 311-324. doi: 10.3934/QFE.2021014

    Related Papers:

  • In this paper, we examine the political gridlock in reforming the Economic and Monetary Union. We utilize a two–stage game with imperfect information in order to study the optimal sequencing. The main results are: first, optimal sequencing requires for incompliant Member States a default option in stage–two, which in principle is related to the today's fiscal architecture (EMU-I). Second, we show that compliant countries prefer a reform equilibrium today if and only if they have a free choice about the preferred fiscal architecture at the end — either EMU-II with binding European coordination or EMU-I related to Maastricht. Noteworthy, our sequencing approach works for any design of the EMU-II architecture.


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