Intra-euro rebalancing is inevitable but insufficient
Greece, Portugal and Spain face a serious risk of external solvency due to their close to minus 100 percent of GDP net negative international investment positions, which are largely composed of debt. The perceived inability of these countries to rebalance their external positions is a major root of the euro crisis.Intra-euro rebalancing through declines in unit labour costs (ULC) in southern Europe, and ULC increases in northern Europe should continue, but has limits because - The share of intra-euro trade has declined. Intra-euro trade balances have already adjusted to a great extent. The intra-euro real exchange rates of Greece, Portugal and Spain have also either already adjusted or do not indicate significant appreciations since 2000. There are only two main current account surplus countries, Germany and the Netherlands. A purely intra-euro adjustment strategy would require too-significant wage increases in northern countries and wage declines in southern countries, which do not seem to be feasible.Before the crisis, the euro was significantly overvalued despite the close-to balanced current account position.The euro has depreciated recently, but more is needed to support the extra-euro trade of southern euro-area members. A weaker euro would also boost exports, growth, inflation and wage increases in Germany, thereby helping further intra-euro adjustment and the survival of the euro.
|Date of creation:||Aug 2012|
|Contact details of provider:|| Postal: Rue de la Charité, B-1210 Brussels|
Phone: +32 2 227 4210
Web page: http://www.bruegel.org
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.:
- Egert, Balazs & Halpern, Laszlo, 2006.
"Equilibrium exchange rates in Central and Eastern Europe: A meta-regression analysis,"
Journal of Banking & Finance,
Elsevier, vol. 30(5), pages 1359-1374, May.
- Bal??zs ??gert & L??szl?? Halpern, 2005. "Equilibrium Exchange Rates in Central and Eastern Europe: A Meta-Regression Analysis," William Davidson Institute Working Papers Series wp769, William Davidson Institute at the University of Michigan.
- Égert, Balázs & Halpern, László, 2005. "Equilibrium exchange rates in Central and Eastern Europe : A meta-regression analysis," BOFIT Discussion Papers 4/2005, Bank of Finland, Institute for Economies in Transition.
- Égert, Balázs & Halpern, László, 2005. "Equilibrium Exchange Rates in Central and Eastern Europe: A Meta-Regression Analysis," CEPR Discussion Papers 4869, C.E.P.R. Discussion Papers.
- Jean Pisani-Ferry & Silvia Merler, 2012. "The simple macroeconomics of North and South in EMU," Working Papers 740, Bruegel.
- repec:wsi:jicepx:v:03:y:2012:i:02:n:s1793993312500123 is not listed on IDEAS
- Zsolt Darvas, 2012. "Productivity, labour cost and export adjustment: Detailed results for 24 EU countries," Working Papers 737, Bruegel.
- Zsolt Darvas & Jean Pisani-Ferry, 2011.
"Europe's growth emergency,"
- Zsolt Darvas & Jean Pisani-Ferry, 2011. "Europe's Growth Emergency," IEHAS Discussion Papers 1144, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
- Zsolt Darvas & Jean Pisani-Ferry, 2011. "Europe’s Growth Emergency," Working Papers 1105, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
- Guntram B. Wolff, 2012. "Arithmetic is absolute: euro area adjustment," Policy Contributions 724, Bruegel.
- Bussière, Matthieu & Ca' Zorzi, Michele & Chudik, Alexander & Dieppe, Alistair, 2010. "Methodological advances in the assessment of equilibrium exchange rates," Working Paper Series 1151, European Central Bank.
- Davide Furceri & Stéphanie Guichard & Elena Rusticelli, 2012.
"Medium-Term Determinants Of International Investment Positions: The Role Of Structural Policies,"
Journal of International Commerce, Economics and Policy (JICEP),
World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-32.
- Davide Furceri & Stéphanie Guichard & Elena Rusticelli, 2011. "Medium-Term Determinants of International Investment Positions: The Role of Structural Policies," OECD Economics Department Working Papers 863, OECD Publishing.
- Zsolt Darvas, 2012. "Compositional effects on productivity, labour cost and export adjustments," Policy Contributions 730, Bruegel.
When requesting a correction, please mention this item's handle: RePEc:bre:polcon:747. 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: (Bruegel)
If references are entirely missing, you can add them using this form.