Death of Robert Mundell, “godfather” of the euro and father of international macroeconomics

Robert A. Mundell, whose death was learned on April 4 in Monteriggioni, Italy, at the age of 88, was a thinker as brilliant as he was controversial. Commenting in 2006 on what the Nobel Prize he won in 1999 had brought him, he said: “Now when I say something, people listen. Maybe they shouldn’t, but they do ”. It could not be said better: the thought of this Canadian economist is inescapable, but not incontestable.

It is no coincidence that Mundell received his “Bank of Sweden Prize in memory of Alfred Nobel” in the year of the birth of the single European currency. He is considered to be one of the theorists who helped design it. He himself approved of the monetary construction. He did not see himself as “the father of the euro”, but as “one of its godfathers”. However, his reflections were not enough to avoid the poor workmanship of the single currency, which led to the sovereign debt crises of the 1990s and to faulty fiscal policies. Mundell quickly became critical, even Eurosceptic, considering that the conditions of operation of such a shared currency were not met.

Mundell is not only “the godfather of the euro”, he is much more than that. He is considered to be the first to think about macroeconomics in a modern international and financial framework. Before him, the macroeconomist’s greatest pioneer was John Maynard Keynes. But the brilliant Briton reasoned largely in a closed economy, in a single country. Mundell, him, opened the borders of the model. He provided a new reading grid.

When the Nobel Academy awarded her its prestigious prize, she had in her press release mentioned her “almost prophetic acuity”.

“Robert Mundell chose his problems with unusual – almost prophetic – acuity in terms of predicting the future development of international monetary agreements and capital markets.”

Mundell had indeed a very rare double quality, specific to the most brilliant economists: he had the gift of “seeing” what the future held in store for us but also that of summarizing in a few clear and elegant formulas economic mechanisms at first glance obscure. and drafts. His disappearance was announced by Professor Brian Domitrovic, who called him “The Zeus of economics”.

Optimal currency areas

We thus owe him the “theory of optimal monetary zones” (ZMO), which he wrote down on paper, in a very short article, in 1961 and which still makes reference. For several countries to have an interest in creating a common currency, he explained, there must be excellent mobility of factors of production between them: capital and labor. Because the countries of this monetary zone can no longer use the weapon of devaluation: in the event of a shock to their activity, they can no longer “remake” themselves by lowering the value of their currency and therefore the prices of their exported goods. Only a movement of capital (from other countries in the zone to its economy) or workers (from their territory to those in countries where there is work) allows this shock to be absorbed. This is what happens between the states of the United States, for example. As for the Euro zone, it is more complicated: workers, who speak different languages, cross borders less easily. For the euro to work, other mechanisms must therefore be provided, starting with financial solidarity between member countries …

Today, this theory of ZMOs appears obvious. But at the time when Mundell formulated it, exchange rates were almost all fixed, currency areas made up of different countries were almost nonexistent, and capital circulated very little … So we can talk about this paper of a few pages, of real conceptual dazzling.

Another flash of genius, the highlighting of what has been called the “impossible trinity”, the “trilemma”, the “triangle of incompatibilities”: a country cannot choose to have fixed exchange rates at the same time. , free movement of capital, and independent monetary policy. Always eliminate one of the three options. In the 1990s, France and Germany had recklessly decided to free up capital movements, while keeping the exchange rate fixed. As a result, France had to painfully renounce the independence of its monetary policy and obediently “follow” the interest rates chosen by the German Bundesbank. This unbearable situation, in terms of national sovereignty, led the two countries to make the euro.


Mundell did not just “open” the Keynes grid, adapting it to monetary dynamics in open economies. It also facilitated the work of neoliberals who dreamed in the 1970s of burying Keynesian redistributive policies. Among the paternities which are loaned to him (and which, at this stage of this obituary, risks making him suddenly less sympathetic), there are indeed the “Reaganomics” aiming at stimulating the economy. When Ronald Reagan’s advisers designed these tax-cutting policies aimed at affluent businesses and households, they drew on his work. Reaganomics, also referred to as “supply politics”, are still used today as a breviary by right-wing governments. “The supply-side economy has shown that strongly progressive tax rates reduce the size of the pie to be distributed”Professor Mundell said in a 2006 interview with the American Economic Association. “The poor would be better off with a smaller slice of a bigger cake than with a larger slice of a small cake. “ We are not far from the idea of ​​”runoff” … Mundell recommended maintaining an effective tax rate below 25% so as not to stifle the incentive to undertake. His positions have made him a controversial figure.

Professor at the University of Chicago then at that of Columbia (New York), he has trained generations of economists, including former IMF officials (Stanley Fischer, Michael Moussa …) or central bank governors (Jacob Frenkel , in Israel). He was a bon vivant, who loved cooking, good wine, and Tuscany where he had lived since the end of the 70s, in a magnificent Renaissance villa that he restored with his wife Valerie Natsios. That’s where he died, from cancer of the bile ducts.

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