Why is it so Difficult and Complex to Solve the Euro Problem?
This paper discusses the complexities and challenges in finding a stable long-run solution for the Eurozone crisis. We first discuss the macroeconomic and structural differences among North and South European countries. Focusing on trade, labour productivity and balance of payments data, we show that periphery’s current account deficits are endemic and closely follow economic growth. Our analysis suggests that while German stagnant wage policy might have contributed to the building up of imbalances within the Eurozone to an extent, monetary policy by ECB, deficit-dependence of growth in Southern Europe and the cheap-credit environment of pre-crisis period also played major roles. In addition, we analyze the feasibility of policy proposals for saving the Eurozone, evaluating potential costs/benefits and reviewing the pros and cons of the newly established European Banking Union. We conclude that since the problems in Southern Europe are structural, an active industrialization policy in these countries and a partial fiscal union are essential for a sustainable long-run solution. Furthermore, the Banking Union as it is, is far too immature to have a quick impact on the problem. The costs of the necessary long-lasting reforms and regulations in the Eurozone can exceed short-run benefits. Therefore, a strong political will power with less attention to the short run benefits is necessary for a successful recovery.
(This abstract was borrowed from another version of this item.)
|Date of creation:||Feb 2013|
|Contact details of provider:|| Postal: Natuk Birkan Hall, Bebek, 34342 İstanbul|
Phone: +90 (212) 359-6505
Fax: +90 (212) 287-2453
Web page: http://www.econ.boun.edu.tr/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hans-Werner Sinn, 2012. "The European Balance of Payments Crisis: An Introduction," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 03-10, 02.
- Özlem Onaran, 2010.
"Fiscal Crisis in Europe or a Crisis of Distribution?,"
wp226, Political Economy Research Institute, University of Massachusetts at Amherst.
- Ozlem Onaran, 2010. "Fiscal Crisis in Europe or a Crisis of Distribution?," Discussion Papers 18, Research on Money and Finance.
- Olivier Blanchard, 2007. "Current Account Deficits in Rich Countries," IMF Staff Papers, Palgrave Macmillan, vol. 54(2), pages 191-219, June.
- Olivier Blanchard, 2007. "Current Account Deficits in Rich Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 54(2), pages 127-158, June.
- Olivier Blanchard, 2007. "Current Account Deficits in Rich Countries," NBER Working Papers 12925, National Bureau of Economic Research, Inc.
- Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
- Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," CID Working Papers 186, Center for International Development at Harvard University.
- Alberto Bagnai, 2006. "Structural breaks and the twin deficits hypothesis," International Economics and Economic Policy, Springer, vol. 3(2), pages 137-155, November.
- Holger Zemanek & Ansgar Belke & Gunther Schnabl, 2010. "Current account balances and structural adjustment in the euro area," International Economics and Economic Policy, Springer, vol. 7(1), pages 83-127, May.
- Zemanek, Holger & Belke, Ansgar & Schnabl, Gunther, 2010. "Current Account Balances and Structural Adjustment in the Euro Area," Ruhr Economic Papers 176, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
- Sergio Cesaratto & Antonella Stirati, 2010. "Germany and the European and Global Crises," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 39(4), pages 56-86, January.
- Sergio Cesaratto & Antonella Stirati, 2011. "Germany and the European and Global Crises," Department of Economics University of Siena 607, Department of Economics, University of Siena.
- Silvia Merler & Jean Pisani-Ferry, 2012. "Sudden Stops in the Euro Area," Review of Economics and Institutions, Università di Perugia, vol. 3(3).
- Silvia Merler & Jean Pisani-Ferry, 2012. "Sudden stops in the euro area," Policy Contributions 718, Bruegel.
- Alberto Bagnai, 2013. "Unhappy families are all alike: Minskyan cycles, Kaldorian growth, and the Eurozone peripheral crises," a/ Working Papers Series 1301, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
- Sergio Cesaratto, 2012. "Controversial and novel features of the Eurozone crisis as a balance of payment crisis," Department of Economics University of Siena 640, Department of Economics, University of Siena.
- Bénétrix, Agustín S. & Lane, Philip R., 2013. "Fiscal cyclicality and EMU," Journal of International Money and Finance, Elsevier, vol. 34(C), pages 164-176.
- Agustín S. Bénétrix & Philip R. Lane, 2012. "Fiscal Cyclicality and EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp403, IIIS.
- Jesus Felipe & Utsav Kumar, 2014. "Unit labor costs in the eurozone: the competitiveness debate again," Review of Keynesian Economics, Edward Elgar Publishing, vol. 2(4), pages 490-507, October.
- Jesus Felipe & Utsav Kumar, 2011. "Unit Labor Costs in the Eurozone: The Competitiveness Debate Again," Economics Working Paper Archive wp_651, Levy Economics Institute.
- Fernanda Nechio, 2011. "Monetary policy when one size does not fit all," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue june13.
- Sinn, Hans-Werner, 2011. "Introduction," Munich Reprints in Economics 19628, University of Munich, Department of Economics.
- Roberto Frenkel & Martin Rapetti, 2009. "A developing country view of the current global crisis: what should not be forgotten and what should be done," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 685-702, July.
- Borio, Claudio, 2014. "The financial cycle and macroeconomics: What have we learnt?," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 182-198.
- Claudio Borio, 2012. "The financial cycle and macroeconomics: What have we learnt?," BIS Working Papers 395, Bank for International Settlements.
- Raphaël Chiappini, 2011. "Offshoring and export performance in the european automotive industry," Working Papers hal-00637603, HAL.
- Raphaël Chiappini, 2012. "Offshoring and export performance in the European automotive industry," Post-Print halshs-00853444, HAL.
- N/A, 2011. "Balance of Payments," Foreign Trade Review, , vol. 45(4), pages 73-104, January.
- Thomas Mayer & Jochen Möbert & Christian Weistroffer, 2012. "Macroeconomic Imbalances in EMU and the Eurosystem," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 35-42, 02.
- Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
- Alberto Botta, 2012. "Conflicting Claims in the Eurozone? Austerity’s Myopic Logic and the Need for a European Federal Union in a post-Keynesian Eurozone Center-Periphery Model," DEM Working Papers Series 011, University of Pavia, Department of Economics and Management.
- Alberto Botta, 2012. "Conflicting Claims in the Eurozone? Austerity's Myopic Logic and the Need for a European Federal Union in a Post-Keynesian Eurozone Center-Periphery Model," Economics Working Paper Archive wp_740, Levy Economics Institute.
- Hutchison, Michael M. & Noy, Ilan & Wang, Lidan, 2010. "Fiscal and monetary policies and the cost of sudden stops," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 973-987, October.
- Michael M. Hutchison & Ilan Noy & Lidan Wang, 2007. "Fiscal and Monetary Policies and the Cost of Sudden Stops," Working Papers 200724, University of Hawaii at Manoa, Department of Economics.
- Onaran, Özlem, 2009. "A crisis of distribution," Greenwich Papers in Political Economy 16224, University of Greenwich, Greenwich Political Economy Research Centre.
- Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn & Bacate, Marife, 2012. "Product complexity and economic development," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 36-68.
- Arnelyn Abdon & Marife Bacate & Jesus Felipe & Utsav Kumar, 2010. "Product Complexity and Economic Development," Economics Working Paper Archive wp_616, Levy Economics Institute.
- 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.
- Philip R. Lane, 2012. "The European Sovereign Debt Crisis," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 49-68, Summer.
- Thomas I. Palley, 2011. "Monetary Union Stability: The Need for a Government Banker and the Case for a European Public Finance Authority," IMK Working Paper 2-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:bou:wpaper:2013/02. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lutfu Gozgucu)
If references are entirely missing, you can add them using this form.