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Austerity, Growth and Inflation. Remarks on the Eurozone's Unresolved Competitiveness Problem

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  • Hans-Werner Sinn

Abstract

While the financial protection measures enacted by the ECB and the community of Eurozone members have calmed financial markets, they have left the competitiveness problem of the Eurozone’s southern countries and France unresolved. The paper compares price inflation before the crisis with the necessary and actual price cuts that have taken place since the outbreak of the crisis, predicting a decade of stagnation for the south and inflation for the north. Keynesian demand policy is counterproductive in the south and unnecessary in the north. The necessary realignment of relative goods prices and current account imbalances can be achieved if market forces are allowed to redirect capital flows to the north instead of being artificially steered to uses they are keen to avoid.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-01/cesifo1_wp4086.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4086.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4086

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Keywords: competitiveness; inflation; realignment; Keynesian policy;

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References

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  1. Hans-Werner Sinn, 2010. "Rescuing Europe," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 11(SPECIALIS), pages 1-22, 08.
  2. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target Balances and the German Financial Account in Light of the European Balance-of-Payments Crisis," CESifo Working Paper Series 4051, CESifo Group Munich.
  3. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target loans, current account balances and capital flows: the ECB’s rescue facility," International Tax and Public Finance, Springer, vol. 19(4), pages 468-508, August.
  4. Hans-Werner Sinn & Robert Koll, 2000. "The Euro, Interest Rates and European Economic Growth," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 1(3), pages 30-31, October.
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Cited by:
  1. Scharpf, Fritz W., 2014. "No exit from the euro-rescuing trap?," MPIfG Discussion Paper 14/4, Max Planck Institute for the Study of Societies.
  2. Makram El-Shagi & Axel Lindner & Gregor von Schweinitz, 2014. "Real Effective Exchange Rate Misalignment in the Euro Area: A Counterfactual Analysis," IWH Discussion Papers 6, Halle Institute for Economic Research.
  3. Ordóñez, Javier & Sala, Hector & Silva, José I., 2014. "Real Unit Labour Costs in Eurozone Countries: Drivers and Clusters," IZA Discussion Papers 8258, Institute for the Study of Labor (IZA).

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