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EMU's Problems: Asymmetric Shocks or Asymmetric Behavior?

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Author Info

  • Andrea Boltho

    (Magdalen College, University of Oxford, High Street, Oxford, OX1 4AU, UK)

  • Wendy Carlin

    (University College London, Gower Street, London WC1E 6BT, UK)

Abstract

The early literature critical of the European Monetary Union feared the effects of asymmetric shocks on an area with little intercountry labor mobility and no common fiscal policy. Yet, asymmetric behavior, rather than asymmetric shocks, appears to be at the root of present difficulties. Peripheral countries have seen profligate public sectors incur large deficits and incautious private sectors incur large debts. In addition, wages in the Southern economies have grown more rapidly, and productivity more slowly, than in the North, storing up a medium-run competitiveness problem. Finally, governance standards, rather than converging, have diverged thus potentially jeopardizing the long-run aim of full political union. A plausible explanation for the failure of wage and governance behavior to converge is deep-seated differences in institutions, culture and trust. The potential for such cross-country differences to undermine the success of the Eurozone was neglected in the early analysis of the common currency area.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Comparative Economic Studies.

Volume (Year): 55 (2013)
Issue (Month): 3 (September)
Pages: 387-403

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Handle: RePEc:pal:compes:v:55:y:2013:i:3:p:387-403

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  1. Ichino, Andrea & Maggi, Giovanni, 2000. "Work Environment And Individual Background: Explaining Regional Shirking Differentials In A Large Italian Firm," CEPR Discussion Papers 2387, C.E.P.R. Discussion Papers.
  2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "Cultural Biases in Economic Exchange," NBER Working Papers 11005, National Bureau of Economic Research, Inc.
  3. Luigi Guiso & Paolo Pinotti, 2012. "Democratization and Civic Capital," EIEF Working Papers Series 1202, Einaudi Institute for Economics and Finance (EIEF), revised Feb 2012.
  4. Josef C Brada & Marcello Signorelli, 2012. "Comparing Labor Market Performance: Some Stylized Facts and Key Findings," Comparative Economic Studies, Palgrave Macmillan, vol. 54(2), pages 231-250, June.
  5. Hans-Werner Sinn & Timo Wollmershaeuser, 2011. "Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility," NBER Working Papers 17626, National Bureau of Economic Research, Inc.
  6. Fleming, J Marcus, 1971. "On Exchange Rate Unification," Economic Journal, Royal Economic Society, vol. 81(323), pages 467-88, September.
  7. Maurizio Bovi & Laura Castellucci, 2001. "Cosa sappiamo dell'economia sommersa in Italia al di là dei luoghi comuni? Alcune proposizioni empiricamente fondate," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2001(6).
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