Europe may not be an optimum currency area because

Question

Quizplus · Accepted Answer

Fiscal transfers (or redistributive mechanisms) are a key feature of an optimal currency area, as they help address economic imbalances and shocks across different regions or countries. However, in the European Union and the eurozone, fiscal transfers are relatively limited and subject to political constraints, which may hinder the ability of countries to respond to asymmetric shocks and maintain economic convergence. The other factors mentioned (language diversity, trade integration, financial markets) are also relevant for the functioning of a currency union, but they are not as critical as fiscal transfers.

Europe May Not Be an Optimum Currency Area Because