International Journal of Economics and Financial Issues Vol. 2, No. 3, 2012, pp.296-303 ISSN: 2146-4138 www.econjournals.com Is the ‘EURO’ a Defunct Currency? Constantinos Alexiou Cranfield University, School of Management, UK. E-mail: alexiou1967@gmail.com Joseph Nellis Cranfield University, School of Management, UK. E-mail: j.g.nellis@cranfield.ac.uk ABSTRACT: In this paper we provide a brief discourse on the theory of optimum currency areas to serve as a basis for constructive criticism of the conceptual framework of the eurozone. With particular reference to the Greek economic crisis, we argue that the very architecture of the EU experiment involving the single currency was inherently flawed from the outset in so far as political pressures to speed up the process towards a politically unified Europe has resulted in what is perceived as the worst economic impasse in the history of modern capitalism. Keywords: Optimum Currency Area; Economic and Monetary Integration; Euro; Greece. JEL Classifications: E42; F13; F33; F42 1. Introduction Research into the nature of and implications arising from the establishment of an optimum currency area (OCA) has been ongoing since the pioneering work by Mundell (1961) and McKinnon (1963). The topic has increased in significance in more recent years, particularly in the context of developments within the European Union (EU) and as a result of the formation of euroland (or eurozone) on 1 January 1999. A heated debate has been ongoing concerning the consequences of deeper European integration and the economic costs and benefits of Economic and Monetary Union (EMU) involving the creation of the single European currency, the euro. The topic has also grown in significance in the context of the sovereign debt crisis which has rocked a number of European states in recent years. The scale of the crisis has led to speculation about the very survival of the euro currency itself and the future pace of European integration (including not only monetary union but also fiscal harmonisation – and, perhaps, ultimately political union). Suggestions have been raised by some observers that it might be wiser for euro members to pause and consider forming a “two-speed” eurozone with the strongest countries forging ahead with ever-closer integration and the others taking a longer time-scale to adjust. This paper seeks to make a contribution to this debate by first providing a brief theoretical discourse on the theory of optimum currency areas as the basis for a constructive criticism of the conceptual framework which underpins the eurozone. In particular, with reference to the Greek economic crisis, we argue that the very architecture of the EU experiment might have been inherently flawed at the outset, in so far as political pressures to speed up the process towards a politically unified Europe have resulted in what is perceived as the worst economic impasse in the history of modern capitalism. Ostensibly, the extent to which some member states of the EU have pursued a neoliberalist agenda since the birth of the unification plans appears to have been a contributing factor to the economic derailment of the ‘euro-train’ and the bleak long term economic prospects facing a number of EU member states. The rest of the paper is organized as follows: Section 2 captures the fundamental aspects of the meaning of an optimum currency area by succinctly reviewing the existing literature whilst Section 3 provides an insight into the framework within which the single European currency was envisaged. Section 4, by drawing on the Greek economic crisis, argues why the entire theoretical