Monetary regimes and cyclical stabilization policies in the European economic area: a theoretical and empirical analysis.

Summary The introduction of the Euro in 1999 was a major economic event for European countries. The financial crisis of 2007, followed by the sovereign debt crisis in 2010, has led to question the sustainability of the Eurozone, and the ability of some of its members to meet their commitments to the single currency. The austerity measures implemented within the Economic and Monetary Union in the current crisis context may constitute for some States an additional temptation to leave the single currency and recover their monetary and fiscal independence. An exit of Greece from the Eurozone, or even of other Member States in difficulty (Portugal, Ireland, Italy, and Spain) is today a scenario that can no longer be excluded. This thesis proposes to consider the question of the optimal monetary regime, flexible exchange rate regime or monetary union, for the 17 countries of the Eurozone, in the context of the financial and sovereign debt crises that currently affect them. The first chapter is general and aims to formally demonstrate the occurrence of a structural break due to the transition to the single currency in 1999. It shows that such a break did occur for the countries of the Euro zone around 1992, which marked the adoption of the Maastricht Treaty and the establishment of the convergence criteria for the adoption of the Euro. This break is not shared by the three European countries that have preserved their currency (United Kingdom, Sweden and Denmark). The second chapter constitutes the heart of this work. It presents the reference model used to compare the two monetary regimes considered for the Euro zone. It is a two-country model incorporating financial rigidities in the context of interbank transactions between member states. The model, once calibrated for the Eurozone, suggests that financial rigidities can play a considerable role in the dynamics of these states, as shocks affecting partner economies can contribute significantly to national dynamics. Preliminary numerical simulations of financial crises carried out on the model do not provide conclusive answers as to the performance of the two monetary regimes considered, with the flexible exchange rate regime appearing to lead to greater stability, whereas a monetary union allows for a more rapid recovery from the initial crisis. The final chapter has a dual purpose. First, it proposes a formal welfare criterion for evaluating the respective performances of the two regimes under consideration. It also develops a number of extensions to the reference model, in order to integrate sovereign debt and the credit policies (Covered Bonds Purchase Programme and Securities Markets Programme) implemented by the ECB since the beginning of the crisis. The results show that in the absence of interventionist policies by the European Central Bank, a large majority of Eurozone countries (15 out of 17) would benefit from a higher level of welfare in a flexible exchange rate regime. However, the conclusions are reversed under the Securities Markets Programme, where member states become overwhelmingly in favour of a monetary union regime. This suggests that the ECB has a role to play within the European monetary area that goes beyond its primary function of initiating monetary policy.