The development of a common currency in Europe has been marked by recurrent crises. This is hardly surprising. Economic theory has long established that sovereign states trying to lock exchange rates in a system of quasi-fixed parities (as occurred throughout the 1980’s and the 1990’s), or to adopt a common currency can only be successful under strict conditions. The consequences of giving up monetary autonomy must be minimized and/or compensated. System-wide institutions are needed, to prevent large imbalances from building up, and to contain their negative impact on stability if they emerge.

The lecture draws lessons from a comparative analysis of the European currency and financial crisis of 1992-93 and the current crisis, interpreted as manifestations of ineffective intra-European cooperation. As deep policy conflict on the crisis resolution erodes trust among policymakers, individual country’s efforts to adjust can be frustrated by binding system-wide constraints and instability.