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The euro area's tightrope walk- debt and competitiveness in Italy and Spain

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  • Zsolt Darvas

Abstract

Competitiveness adjustment in struggling southern euro-area members requires persistently lower inflation than in major trading partners, but low inflation worsens public debt sustainability. When average euro-area inflation undershoots the two percent target, the conflict between intra-euro relative price adjustment and debt sustainability is more severe. In our baseline scenario, the projected public debt ratio reduction in Italy and Spain is too slow and does not meet the European fiscal rule....

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  • Zsolt Darvas, 2013. "The euro area's tightrope walk- debt and competitiveness in Italy and Spain," Policy Contributions 790, Bruegel.
    • Handle: RePEc:bre:polcon:790
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    References listed on IDEAS

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    1. Jean Pisani-Ferry & Silvia Merler, 2012. "The simple macroeconomics of North and South in EMU," Working Papers 740, Bruegel.
    2. Zsolt Darvas, 2010. "The Impact of the Crisis on Budget Policy in Central and Eastern Europe," OECD Journal on Budgeting, OECD Publishing, vol. 10(1), pages 1-42.
    3. Zsolt Darvas, 2010. "The case for reforming euro area entry criteria," Society and Economy, Akadémiai Kiadó, Hungary, vol. 32(2), pages 195-219, December.
    4. Guntram B. Wolff, 2012. "Arithmetic is absolute- euro area adjustment," Policy Contributions 724, Bruegel.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "A Decade of Debt," Central Banking, Analysis, and Economic Policies Book Series, in: Miguel Fuentes D. & Claudio E. Raddatz & Carmen M. Reinhart (ed.),Capital Mobility and Monetary Policy, edition 1, volume 18, chapter 4, pages 97-135, Central Bank of Chile.
    6. Zsolt Darvas, 2011. "Beyond the Crisis: Prospects for Emerging Europe," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 53(2), pages 261-290, June.
    7. Zsolt Darvas, 2011. "Exchange Rate Policy and Economic Growth after the Financial Crisis in Central and Eastern Europe," Working Papers 1103, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
    8. Zsolt Darvas & Jean Pisani-Ferry & Guntram B. Wolff, 2013. "Europe's growth problem (and what to do about it)," Policy Briefs 776, Bruegel.
    9. Zsolt Darvas, 2012. "Compositional effects on productivity, labour cost and export adjustments," Policy Contributions 730, Bruegel.
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    Cited by:

    1. Giuseppe Mastromatteo & Sergio Rossi, 2015. "The economics of deflation in the euro area: a critique of fiscal austerity," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(3), pages 336-350, July.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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