Hierarchical and Hybrid Money on a Fractured Continent: Europe’s Monetary Architecture after the Eurocrisis
Economic Policy, Applied Economics
Economic Theory
Final Report Abstract
The European Monetary Union (EMU) is a core political priority of Germany. Introducing the euro as a common currency in 1999 was a flagship project for the European integration process. But after a first decade of smooth sailing, the EMU has entered into crisis mode and has scarcely recovered from it. The 2007-9 Global Financial Crisis, which had affected the EMU still rather mildly, soon spilled over into 2009-12 European Sovereign Debt crisis, which brought the EMU at the brink of collapse and necessitated a series of government bailouts, emergency vehicles, and central bank interventions. The aftermath was characterized by large political reform projects such as Banking Union and Capital Market Union and a proliferation of asset purchase programmes of the European Central Bank (ECB). The outbreak of the COVID-19 pandemic put the EMU back into crisis mode. The ECB launched the ‘Pandemic Emergency Purchasing Programme’ (PEPP) and the EU Commission the ‘Recovery and Resilience Facility’ (RRF), which for the first time can issue supranational EU debt. The design of the EMU was a technocratic project developed in the mid-1990s, which was strongly based on ideas of private efficient markets, fiscally prudent public treasuries disciplined by market forces, and rules-based central banks with a small balance sheet. The crises events have turned this institutional arrangement upside down. There is hardly any macro-financial taboo that has not fallen since 2007. For persistent critics of the EMU project, this was just what they were waiting for. They had for a long time claimed that monetary unification couldn’t work and was doomed to fail. The reality, however, is different. A new institutional setting has emerged out of crisis dynamics and political reactions to it. Nobody has planned it and it is very difficult to get a comprehensive picture of it, but it nevertheless works somehow. At the same time, the established models in academia and public institutions, which are fundamentally ahistorical and apolitical, have barely found a way to account for the new reality. This was the entry point for my research project Hierarchical and Hybrid Money on a Fractured Continent: Europe’s Monetary Architecture after the Eurocrisis. In the project, I inquired how we can better understand the real-world monetary system that the EMU has become and theorize on its historical transformation. To this end, I developed a novel methodology called ‘monetary architecture’. Drawing on insight from the emerging field of critical macro-finance, it synthesizes the EMU’s complex political-economy reality as a web of interlocking balance sheets which comprises central banks, commercial banks, shadow banks as well as national and supranational treasuries and off-balance-sheet fiscal agencies (OBFAs). These institutions interlock through different instruments they hold as assets and liabilities. This adds up to a fully self-referential credit system, which is subject to ongoing historical transformation that is driven by endogenous crisis dynamics as well as political and technocratic reactions to it. Using the monetary architecture methodology, I carried out several case studies that analyse and explain different aspects of the EMU’s transformation. For instance, I carved out the paramount importance that the TARGET system (Trans-European Automated Real-Time Gross Settlement Express Transfer system), which connects the ECB with the national central banks, played for European monetary integration and how the ECB transformed its role in it throughout the last crisis-driven decades. In another article, I analyse how the Eurozone’s neoliberal fiscal rules enshrined in the Maastricht Treaty have been gradually superseded through a proliferation of OBFAs such as the European Stability Mechanism or the RRF. I show that the original rules still exist on paper but the technique of ‘governing through OBFAs’ has opened up ways to circumvent them that made a new form of technocracy-driven European integration possible.
Publications
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(2020) ‘A Macro-Financial Model of the Eurozone Architecture Embedded in the Global Offshore US-Dollar System’, Boston University, Global Development Policy Center, Global Economic Governance Initiative, GEGI Study July 2020, Boston, MA
Murau, Steffen
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(2020) ‘The Evolution of the Offshore US-Dollar System. Past, Present and Four Possible Futures’, Journal of Institutional Economics, 16 (6), pp. 767-783
Murau, Steffen, Joe Rini, and Armin Haas
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(2021) ‘Financial Globalization as Positive Integration. Monetary Technocrats and the Eurodollar Market in the 1970s’, Review of International Political Economy, 28 (4), pp. 794-819
Braun, Benjamin, Arie Krampf, and Steffen Murau
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(2022) 'The Eurozone's Evolving Fiscal Ecosystem. Mitigating Fiscal Discipline by Governing through Off-Balance-Sheet Fiscal Agencies', New Political Economy 27 (1), pp. 62-80
Guter-Sandu, Andrei and Steffen Murau
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(2022) ‘International Monetary Hierarchy through Emergency US-Dollar Liquidity. A Key Currency Approach’, Competition and Change
Murau, Steffen, Fabian Pape, and Tobias Pforr
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(2022) ‘Rethinking Monetary Sovereignty. The Global Credit Money System and the State’, Perspectives on Politics
Murau, Steffen and Jens van ‘t Klooster
