- Optimal Currency Area requires flexible labor mobility that is not in EU , only USA. Shambaugh
- Currency devaluations return you fast to growth , internal rigid price devaluations are unsuccessful.
- So the EURO is in danger. Currency Acount deficits of south europe for years cannot be balanced by reducing prices but only own currency.
- Ireland , Greece in EURO currency suffers severe crises , Iceland devaluates their currency , the crisis is mild and short. Italy is also ready to leave EURO


- Shambaugh. The EU sovereign , banking, growth crises are interlinked
- attempts at fiscal austerity to relieve the problems are slowing growth. without growth the sovereign debt crisis will persist.
- troubles for the banks could bankrupt certain sovereigns, supporting the banks , and failure of these banks could lead to a broken credit channel to stop growth.
- the sovereign debt are so large that if Greece, Ireland, Italy, Portugal, and Spain cannot pay, the banking system is insol-
vent
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