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Currency Unions: Some Lessons from the Euro-Zone

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  • Charles Goodhart

Abstract

Whilst there are many sizeable benefits from currency union, the main disadvantage is often the difficulty of adjusting to an asymmetric shock. Such adjustment is easier when the separate countries (regions) in such a union have flexible labour markets, and when there is a federal fiscal system to ease the adjustment process. The euro-zone has neither. We show that the trends in relative unit labour costs have in several recent cases been worsening relative competitiveness, thereby putting the euro-zone under greater centrifugal pressure. Nevertheless the costs of ‘exit’ are so high that it would only probably occur as a consequence of political mis-calculation. Copyright International Atlantic Economic Society 2007

Suggested Citation

  • Charles Goodhart, 2007. "Currency Unions: Some Lessons from the Euro-Zone," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(1), pages 1-21, March.
    • Handle: RePEc:kap:atlecj:v:35:y:2007:i:1:p:1-21
    DOI: 10.1007/s11293-006-9050-x
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    References listed on IDEAS

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    1. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
    2. Charles Goodhart, 2006. "Replacing the Stability and Growth Pact?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 34(3), pages 243-259, September.
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    Cited by:

    1. Valentyna Ozimkovska, 2016. "Volatility of industrial production growth and characteristics of optimal currency areas in EU-12 countries," International Economics and Economic Policy, Springer, vol. 13(4), pages 563-591, October.
    2. Franco Praussello, 2011. "Asymmetric Shocks and Monetary Disintegration: The Case of the Eurozone," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume II, chapter 16, Edward Elgar Publishing.

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    More about this item

    Keywords

    currency union; asymmetric shock; euro-zone; relative unit labour costs; exit costs; F33; F36;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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