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Current Account Imbalances in the EMU: An Assessment of Official Policy Responses

Author

Listed:
  • Nina Dodig

    () (Berlin School of Economics and Law; Institute for International Political Economy (IPE) Berlin, Germany)

  • Hansjörg Herr

    () (Berlin School of Economics and Law; Institute for International Political Economy (IPE) Berlin, Germany)

Abstract

To handle the sovereign debt crisis in general and macroeconomic imbalances in particular the leading EU institutions and the Troika (European Central Bank, European Commission and International Monetary Fund) adopted two broad approaches: The short-term approach is based on enhancing the Stability and Growth Pact and to impose fiscal austerity on crisis countries. The medium- to long-term strategy consists of internal devaluation via reducing wage costs. Both approaches were combined with structural adjustment programs in the spirit of the Washington Consensus. The Troika’s policy implies an asymmetric adjustment process burdening only crisis countries. It led to the shrinking of demand and output in crisis countries comparable to the Great Depression and brought the European Monetary Union to the edge of deflation. These polices must be judged as mislead increasing the risk of Japanese disease with more than one lost decade.

Suggested Citation

  • Nina Dodig & Hansjörg Herr, 2015. "Current Account Imbalances in the EMU: An Assessment of Official Policy Responses," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(2), pages 193-216, June.
  • Handle: RePEc:voj:journl:v:62:y:2015:i:2:p:193-216
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    File URL: http://www.panoeconomicus.rs/casopis/2015_2/04%20Nina%20Dodig%20and%20Hansjoerg%20Herr.pdf
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    References listed on IDEAS

    as
    1. Hansjörg Herr, 2014. "The European Central Bank and the US Federal Reserve as Lender of Last Resort," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(1), pages 59-78, Februar.
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    4. Carlos A. Carrasco & Patricia Peinado, 2015. "On the Origin of European Imbalances in the Context of European Integration," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(2), pages 177-191, June.
    5. Paul de Grauwe, 2013. "Design Failures in the Eurozone: Can they be fixed?," Europe in Question Discussion Paper Series of the London School of Economics (LEQs) 7, London School of Economics / European Institute.
    6. Jorge Uxó & Jesús Paúl & Eladio Febrero, 2011. "Current Account Imbalances in the Monetary Union and the Great Recession: Causes and Policies," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(5), pages 571-592, December.
    7. Jorg Bibow, 2012. "The Euro Debt Crisis and Germany's Euro Trilemma," Economics Working Paper Archive wp_721, Levy Economics Institute.
    8. Olivier Blanchard & Florence Jaumotte & Prakash Loungani, 2014. "Labor market policies and IMF advice in advanced economies during the Great Recession," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-23, December.
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    11. Hansjörg Herr, 2009. "The labour market in a Keynesian economic regime: theoretical debate and empirical findings," Cambridge Journal of Economics, Oxford University Press, vol. 33(5), pages 949-965, September.
    12. Dodig, Nina & Herr, Hansjörg, 2014. "Previous financial crises leading to stagnation: Selected case studies," IPE Working Papers 33/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
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    Citations

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    Cited by:

    1. Uxó González, Jorge & Álvarez, Ignacio & Febrero, Eladio, 2017. "Fiscal space on the eurozone periphery: The case of Spain," IPE Working Papers 84/2017, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    2. Eckhard Hein, 2018. "Stagnation policy in the Eurozone and economic policy alternatives: A Steindlian/neo-Kaleckian perspective," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 44(3), pages 315-348.
    3. Eckhard Hein & Walter Paternesi Meloni & Pasquale Tridico, 2019. "Welfare models and demand-led growth regimes before and after the financial and economic crisis," FMM Working Paper 41-2019, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Hein, Eckhard, 2017. "Financialisation and tendencies towards stagnation: The role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007-9," IPE Working Papers 90/2017, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

    More about this item

    Keywords

    Current account imbalances; Euro area economic policies; Internal devaluation; Austerity;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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