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Real Wage Rigidities, Fiscal Policy, and the Stability of EMU in the Transition Phase

Author

Listed:
  • Mr. Eric Thode
  • Norbert Berthold
  • Rainer Fehn

Abstract

EMU started with eleven member countries as scheduled on January 1, 1999. The paper shows that the primacy of politics over economics in this decision could have serious consequences concerning the stability of EMU in the transition phase. Speculative attacks against currencies which are in economic distress due to asymmetric shocks can still happen. A speculative attack as such cannot force a country out of EMU. However, the country concerned might voluntarily decide to leave the system as the costs of staying inside EMU, e.g., due to further rising unemployment, become too large to bear.

Suggested Citation

  • Mr. Eric Thode & Norbert Berthold & Rainer Fehn, 1999. "Real Wage Rigidities, Fiscal Policy, and the Stability of EMU in the Transition Phase," IMF Working Papers 1999/083, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1999/083
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    Citations

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    Cited by:

    1. Torben M. Andersen, 2003. "Wage formation and European integration," European Economy - Economic Papers 2008 - 2015 188, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Schäfer Wolf, 2018. "70 Jahre Wirtschafts- und Währungsreform: Von der Rekonstruktionstheorie zur Ordnungspolitik," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 69(1), pages 85-95, July.
    3. Andersen, Torben M., 2008. "Heterogenous wage formation under a common monetary policy," Economic Modelling, Elsevier, vol. 25(4), pages 740-771, July.
    4. Andersen, Torben M. & Spange, Morten, 2006. "International interdependencies in fiscal stabilization policies," European Economic Review, Elsevier, vol. 50(5), pages 1169-1195, July.
    5. Constantinos Alexiou, 2011. "When the Bough Breaks Making Sense of the Greek Economic Waterloo'," International Journal of Economics and Financial Issues, Econjournals, vol. 1(3), pages 123-132, September.
    6. Spange, Morten, 2008. "International spill-over effects of labour market rigidities," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 157-178, March.
    7. Morten Spange, 2007. "Do Structural Asymmetries Increase The Gains From International Fiscal Policy Coordination?," Manchester School, University of Manchester, vol. 75(1), pages 131-150, January.
    8. Davide Furceri, 2002. "Risk-sharing e architettura istituzionale delle politiche di stabilizzazione nell'UME: aspetti metodologici e verifica empirica," Rivista di Politica Economica, SIPI Spa, vol. 92(6), pages 175-210, November-.

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