Global Imbalances and Financial Capitalism.

Summary The chapter assesses the European integration process from the early blocking of the EMS. Intra-European exchange rate misalignments are estimated with the FEER approach given that these misalignments have been a key issue at the time of the EMS and within the monetary union. The main drawbacks of the European economic policy are underlined from the Single Market programme in the 1980s to the launching of the single currency. The settlement of a monetary union between heterogeneous countries with no adjustment mechanism (no fiscal federalism, no political agreement to allow the ECB to guarantee the national public debts), except competitive wage deflation, could only lead to divergent evolutions. The single currency trap post 2008 is analysed. Reforms have been adopted in emergency to avoid a break-up (European Stability Mechanism, OMT, QE) but remain unfinished (Banking Union) or maladjusted (Fiscal Treaty). The way of adjusting internal imbalances is still asymmetrical. Deficit countries are obliged to adjust whereas surplus countries are not. Wage deflation and restrictive policies have replaced competitive devaluations. With the incoherence of the euro zone regime, the question of its sustainability is raised.