This article examines the functioning of the euro area with emphasis on the desirability of its further enlargement. This is based on theoretic research regarding optimal currency areas, empirical studies on the euro area in the past 20+ years, as well as historical experiences of two monetary unions in Europe in the late nineteenth and early twentieth centuries. The discussion highlights a number of problems in the euro area’s design and documents the damage caused—especially in the periphery (southern) countries. Consequently, the analysis implies that it would be too risky for the seven countries on the accession list (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania and Sweden) to adopt the euro at this point. It is also argued that in most of these countries voters do not seem to be sufficiently informed to adequately assess all the pros and cons of euro accession. The article concludes by outlining structural reforms that could in principle alleviate the euro area’s key problems, and potentially make its enlargement desirable in the future.

This article discusses the current bull runs in many assets such as Bitcoin, Big Tech and the meme stocks, concluding that they are very likely bubbles (well above their fundamental value). We then highlight a unique set of circumstances due to which the duration, magnitude, and subsequent correction of this market exuberance may be very different from previous bubble episodes. These circumstances have led to an ever-growing amount of global liquidity chasing a small number of widely-known assets that have played the role of Schelling’s ‘focal points’. In combination with extremely low (even negative) returns on conventional safe assets, the usual ‘flight to safety’ has been (partly) superseded by a ‘flight to focal points’.

Over the past two decades, monetary policy has been used in unprecedented ways for macroeconomic and financial sector stabilization. This article argues that monetary policy, especially the unconventional measures (quantitative easing) implemented in the post-2008 period, has likely contributed to major financial imbalances (asset bubbles). Markets started responding to bad news about the economy’s fundamentals by stock price increases as if it was good news: in anticipation that loose monetary measures (injections of liquidity) would continue. This has important policy implications for the debate whether/how monetary and macroprudential policies should address asset price developments, very relevant during the current COVID-19 pandemic.

What does the economic future hold for Europe? In the aftermath of the 2008 crisis, four macroeconomic threats have been subject to heated debates by economists and politicians. Some fear that Europe may face (1) secular stagnation, (2) sovereign defaults, (3) excessively high (or low) inflation and (4) collapse of the common currency euro. This paper discusses the relevance and potential drivers of these four threats. Importantly, it highlights the relationships between them, offering an analogy between the European economy and an overweight patient suffering from diabetes. The discussion implies that Europe needs long-term austerity but short-term stimulus, precisely the opposite of what most European countries have done since 2010. In particular, the paper stresses the need for conceptual reforms of public finances that take into account the ageing population trend, especially the pay-as-you-go financed pension and health care schemes. It is argued that such reforms would not only decrease the risk of costly sovereign defaults, but also reduce uncertainty in the economy, stimulate economic activity, and thus minimise the risk of a secular stagnation and a deflationary trap in the aftermath of the 2008 crisis. In addition, they would decrease the likelihood of excessive inflation further down the track caused by unpleasant monetarist arithmetic, as well as reduce the danger of a euro breakup. This scenario parallels an overweight patient adopting a suitable diet that helps him reduce his weight, blood pressure and insulin dependence – alleviating the risk of premature death.