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Macroeconomic imbalances and competitiveness in the euro area

Author

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  • Stefan Collignon

    (Sant’Anna School of Advanced Studies, Pisa, and Centro Europa Ricerche, Rome)

Abstract

This article challenges the new revisionist consensus, whereby current account imbalances have caused the euro crisis. In a monetary union, current accounts are not useful indicators for macroeconomic imbalances, because a currency area is not a fixed exchange rate system. It is a payment union and it is therefore more appropriate to analyse the flow of funds and payments between sectors and Member States. Applying the analysis, it turns out that excessive lending in the north has financed the borrowing in the south, thereby contributing to unequal development in the euro area. To remedy this situation, incentives for competitive investment need to be adjusted. The article describes an innovative approach for determining equilibrium unit labour costs as a benchmark for stable and fair wage setting. It then discusses policy implications and recommends better wage coordination between European trade unions.

Suggested Citation

  • Stefan Collignon, 2013. "Macroeconomic imbalances and competitiveness in the euro area," Transfer: European Review of Labour and Research, , vol. 19(1), pages 63-87, February.
    • Handle: RePEc:sae:treure:v:19:y:2013:i:1:p:63-87
    DOI: 10.1177/1024258912469467
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    References listed on IDEAS

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    1. Olivier Blanchard, 2007. "Current Account Deficits in Rich Countries," IMF Staff Papers, Palgrave Macmillan, vol. 54(2), pages 191-219, June.
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    3. Stefan Collignon, 2012. "Fiscal Policy Rules And The Sustainability Of Public Debt In Europe," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 539-567, May.
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    8. Olivier Blanchard, 2007. "Current Account Deficits in Rich Countries," IMF Staff Papers, Palgrave Macmillan, vol. 54(2), pages 191-219, June.
    9. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
    10. Spaventa, Luigi & Giavazzi, Francesco, 2010. "Why the current account may matter in a monetary union: Lessons from the financial crisis in the Euro area," CEPR Discussion Papers 8008, Centre for Economic Policy Research.
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