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The Microeconomic Dimensions of the Eurozone Crisis and Why European Politics Cannot Solve Them

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  • Christian Thimann

Abstract

The academic and policy debate about the crisis in Europe's single currency area is usually dominated by macroeconomic and public sector considerations. The microeconomic dimensions of the crisis and the private sector issues typically get much less attention. However, it is the private sector hiring choices of domestic and foreign firms that will ultimately be decisive. This paper argues there are two main problems holding back private sector employment creation in the stressed eurozone countries. First, there is a persistent competitiveness problem in some of the eurozone countries due to high labor costs relative to underlying productivity. Second, widespread structural barriers make job creation in these countries far more arduous than in many other advanced economies, and even more arduous than in some key emerging economies and formerly planned economies. Structural barriers to private sector development are particularly widespread in the areas of labor market functioning, goods market functioning, and government regulation. Evidence from the World Economic Forum's Global Competitiveness Index and the World Bank's Doing Business dataset confirms the immense size and persistence of these barriers, despite improvements in some countries in recent years. The paper also presents a novel explanation for the difficulty of structural reforms in the eurozone, tracing the challenge to the current trend to "Europeanize" and "politicize" economic reform discussions in national policy fields where "Europe" is not a legitimate actor and the European political level is not effective.

Suggested Citation

  • Christian Thimann, 2015. "The Microeconomic Dimensions of the Eurozone Crisis and Why European Politics Cannot Solve Them," Journal of Economic Perspectives, American Economic Association, vol. 29(3), pages 141-164, Summer.
  • Handle: RePEc:aea:jecper:v:29:y:2015:i:3:p:141-64
    Note: DOI: 10.1257/jep.29.3.141
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    References listed on IDEAS

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    1. Christophe Blot & Marion Cochard & Jérôme Creel & Bruno Ducoudré & Danielle Schweisguth & Xavier Timbeau, 2014. "Fiscal Consolidation, Public Debt and Output Dynamics in the Euro Area: lessons from a simple model with time-varying fiscal multipliers," Revue d'économie politique, Dalloz, vol. 124(6), pages 953-989.
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    3. Holm-Hadulla, Fédéric & Kamath, Kishore & Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2010. "Public wages in the euro area - towards securing stability and competitiveness," Occasional Paper Series 112, European Central Bank.
    4. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 879-907.
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    Citations

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    Cited by:

    1. Burda Michael C. & Seele Stefanie, 2017. "Das deutsche Arbeitsmarktwunder: Eine Bilanz," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(3), pages 179-204, October.
    2. repec:mes:postke:v:41:y:2018:i:2:p:236-259 is not listed on IDEAS
    3. Michael C. Burda, 2016. "The German Labor Market Miracle, 2003 -2015: An Assessment," SFB 649 Discussion Papers SFB649DP2016-005, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Pasquale Tridico & Riccardo Pariboni, 2018. "Inequality, financialization, and economic decline," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 41(2), pages 236-259, April.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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