The paper analyses the common European monetary policy based on a Mises-Hayek overinvestment framework, which is combined with the theory of optimum currency areas. It shows how since the turn of the millennium a too expansionary monetary policy contributed to unsustainable overinvestment booms in the periphery of the European Monetary Union, and more recently in Germany, dependent on the national fiscal policy stances. It is argued that the ECB´s ultra-loose monetary policy as a crisis therapy puts a drag on long-term growth by conserving distorted economic structures. To preserve political stability a timely exit from the ultra-expansionary monetary policy is postulated.
Hayek Mises European Monetary Union European Central Bank monetary overinvestment theory optimum currency areas fiscal policy asymmetric shocks secular stagnation