Political Legitimacy in a Non-optimal Currency Area

On the basis of a brief reconstruction of the causes and impacts of the euro crisis, this paper explores, counterfactually and hypothetically, whether the new euro regime, insisting on fiscal austerity and supply-side reforms, could have prevented the rise of the crisis or is able to deal with its disastrous economic and social impact. A comparison with the likely impact of transfer-based Keynesian reflation suggests that, in both cases, economic success is uncertain, while both approaches are likely to produce severely negative side-effects. In light of such dismal policy choices, attempts to politicize European election campaigns are more likely to provoke unmanageable policy conflict than to overcome the input-oriented, democratic deficit of European economic governance.