A tale of two trilemmas

EMU is a radical solution to the classic Mundell-Fleming macroeconomic policy trilemma. Unfortunately, it suffers from serious design flaws, and in particular from a lack of fiscal or banking union. This can be understood in terms of Rodrik's 'fundamental political trilemma of the world economy', which can also shed light on such issues as the quality of EU democracy. Hitherto, European governments have been able to navigate 'within the triangles' implied by this trilemma, but the current crisis is pushing them towards the edges, forcing them to make hard choices between democracy, the nation-state and deep economic integration. It is not clear what they will eventually decide.