Transformation of the Eurozone Architecture: Crises and Institutional Change in the Offshore US-Dollar System

S. Murau, A. S. Goghie, M. Giordano and F. Reimer. A GEGI Study, hosted by the Global Development Policy Center, Boston University.

The Eurocrisis is usually explained by excessive sovereign issuance, a weak Stability and Growth Pact, or missing supranational supervision. None of those explains how a US-centric run on shadow money reached some EMU treasuries and not others.

Our answer: it travelled through euro-area repo markets and the Eurosystem's collateral framework. Contagion across the private and public balance sheets of the Eurozone and US monetary architectures was the endogenous force that determined the EMU's transformation into its contemporary shape, from the Global Financial Crisis to the 2014 asset purchase programmes.

Method

Structured process-tracing combined with balance-sheet visualisation of crisis dynamics, built on the macro-financial model developed in Murau (2020) and on primary and secondary sources with private and public sector data.

The analytical scheme runs in three steps: on-balance-sheet contraction; activation of inbuilt elasticity-provision mechanisms; and, where those fail, innovation -- enhanced elasticity space, new instruments, or new institutions. The result is a different account of financial integration in the EMU, and a set of hypotheses towards a theory of endogenous, crisis-driven change in modern monetary architectures.

Read the study: SSRN · The framework: monetary architecture · The tool: monetary-architecture.com

Related presentations

• Murau, S., Goghie, A., and Giordano, M. (2023). "Encumbered Security: Conceptualising Vertical and Horizontal Repos in the Euro Area" (methodological paper) -- Link 1 · Link 2

Related: Eurozone · Balance-Sheet Modelling · Subordination