Balance of Payments or Monetary Sovereignty? In Search of the EMU's Original Sin. Comments on Marc Lavoie’s “The Eurozone: Similarities to and Differences from Keynes’s Plan”

In a recent paper Marc Lavoie (2014) has criticized my interpretation of the Eurozone (EZ) crisis as a balance of payments crisis (BoP view for short). He rather identified the original sin “in the setup and self-imposed constraint of the European Central Bank” and, more in general, as expressed by other scholars, in the dissociation between fiscal and monetary policy. This is defined as the (flawed EMU) institutional set-up view. According to the (prevailing) BoP view, supported with different shades by a variety of economists from the conservative Sinn to the progressive Frenkel, the original sin is in the current account (CA) imbalances brought about by the abandonment of exchange rate adjustments and in the inducement to peripheral countries to get indebted with core countries. The original sin is the euro. The two view are not necessarily juxtaposed. While the BoP crisis looks as a fact, a better institutional design would have likely avoided the current crisis as long as it involved regional transfers robust enough to overcome the mentioned imbalances.