Johnston, A. & Regan, A. (2014) “The absence of national adjustment tools is the reason why Eurozone countries continue to struggle“, LSE EUROPP, 22 Σεπτεμβρίου.
The Eurozone continues to experience low growth, while unemployment remains a substantial problem in several European states. Alison Johnston and Aidan Regan write that despite these issues, the European policy response has remained broadly similar since the crisis: reducing public spending and imposing structural reforms in periphery states to try and improve their competitiveness. They argue that there are far more fundamental problems in the Eurozone and that one potential way to solve these would be to encourage wage rises in northern economies such as Germany.
The Eurozone’s crisis never seems to end. Italy has re-entered recession. The French government is in turmoil over austerity. Youth unemployment is at a historic high in Spain. Increased taxes are crippling low-income earners in Ireland. Extreme poverty is growing in Greece. Wage stagnation continues in Germany. Yet the European policy response remains the same. Reduce public spending and impose structural reforms in the euro periphery and hope that cost competitiveness will kick start economic recovery. Any suggestion that countries are struggling to recover because they lack tools of adjustment or monetary sovereignty is politely ignored. Monetary union is not the problem.
We disagree. In a forthcoming Max Planck Institute for the Study of Societies discussion paper, we argue that the absence of national adjustment tools within a monetary union has significant implications for the co-existence of Europe’s diverse models of capitalism. While gaping external lending and trade imbalances between the Eurozone North and South are identified as an underlying instigator of the crisis, these regional imbalances were heavily contained prior to the launch of the single currency (see figure 1). We do not find this coincidental. The rise in external imbalances within the Eurozone can partially be attributed to how monetary union removed important adjustment mechanisms in the real exchange rate between highly coordinated, low inflation-prone export-led growth models, which congregate in EMU’s Northern economies, and uncoordinated, high inflation-prone domestic demand-led growth models, which congregate in EMU’s periphery.
Σχετικές αναρτήσεις:
- Shik Kang, J. & Shambaugh C., J. (2014) “Progress Towards External Adjustment in the Euro Area Periphery and the Baltics“, Working Paper No.14/131, International Monetary Fund, 22 Ιουλίου.
- Tressel, T. & Wang, S. (2014) “Rebalancing in the Euro Area and Cyclicality of Current Account Adjustments“, Working Paper No. 14/130, International Monetary Fund, 22 Ιουλίου.
- Christopoulou, R. & Monastiriotis, V. (2014) “The public-private duality in wage reforms and adjustment during the Greek crisis“, Crisis Observatory, 14 Απριλίου.