In my view, there are two options open to the euro area: either we can return to the founding principles of monetary union agreed at Maastricht, or we should venture the step towards a deeper European integration which also includes fiscal policy.
While Figure 2 showed that bilateral trade vis-à-vis the US is relatively limited, the importance of the euro-dollar rate for exporters and importers in the euro area is amplified by the dollar tracking strategies of many emerging economies, together with the dominant role of the dollar in international price setting.6 At the same time, the rising share of emerging and developing economies in world GDP (as captured in Figure 1) means that it is also necessary to allow for the possibility of discrete shifts in the currency values of major emerging economies (vis-à-vis the euro) that would materially affect the external environment facing the euro area.