Brexit and the Euro crisis: What kind of union do we want?

Hans-Werner Sinn

Politická Ekonomie, January 2018, pp. 3–19.


The article deals with the two key issues that have been fundamentally changing the European Union – the crisis of Eurozone and the Brexit. The first part discusses the change of the original balance of power in the EU after the exit of Britain and its possible consequences, especially the strengthening of the relative position of France, and hence the French concept of the EU integration model (deeper federalization of the nucleus and the rest) resulting in an even more explicit model of the two-speed EU. In the ideal Pareto model of the Union, paradoxically, the possibility of exit makes the Union more stable and compact. The second part of the text discusses the problem of the uncompetitiveness of Southern Europe as a specific case of Dutch disease and four scenarios of its solution – the disinflation or deflation of the South, the inflation of the North, the exit from the common currency and finally the transfer union. The last named scenario is the least attractive of given options, but it is already in progress. The imbalances in the Targe 2 payment system discussed in the article are example of this. The conclusion of the article brings ten points summarizing necessary economic and political measures for the EU at the time of power shift after the Brexit and ongoing imbalances between the North and the South in the currency union.

This article is a modified version of the honorary doctoral lecture, University of Economics, Prague, February 23rd, 2017.