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Austerity & Competitiveness in the Eurozone: a misleading linkage

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  • Walter Paternesi Meloni

Abstract

After focusing on fiscal indiscipline, the debate on the Eurozone crisis switched over persistent external imbalances among the European Monetary Union countries. Current account differentials were almost exclusively ascribed to the weak price competitiveness of deficit countries – neglecting demand-side factors – and consequently austerity measures have been imposed to peripheral countries in order to foster their competitiveness with the purpose of adjusting external imbalances through export growth. In this context, the contribution of this paper is twofold. Firstly, we identify this view as competitive austerity (in parallel with the expansionary austerity narrative), as the set of measures which, according to policy makers, would stimulate trade balance, output and employment. Secondly, we criticize this approach since fiscal restraints were proved to be counterproductive. We conclude by disproving the austerity-competitiveness linkage from a Keynesian perspective as well as by means of some macroeconomic evidence, and we provide an alternative recipe for the Eurozone issues.

Suggested Citation

  • Walter Paternesi Meloni, 2017. "Austerity & Competitiveness in the Eurozone: a misleading linkage," Departmental Working Papers of Economics - University 'Roma Tre' 0223, Department of Economics - University Roma Tre.
  • Handle: RePEc:rtr:wpaper:0223
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    Cited by:

    1. 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.
    2. Guisan, M.C. & Exposito, P., 2018. "Economic Development Problems And Crisis In The European Union, 2005-2015," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 18(1), pages 23-34.
    3. Walter Paternesi Meloni, 2018. "Italy’s Price Competitiveness: An Empirical Assessment Through Export Elasticities," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 4(3), pages 421-462, November.
    4. Matteo Deleidi & Walter Paternesi Meloni & Antonella Stirati, 2018. "Structural change, labour productivity and the Kaldor-Verdoorn law: evidence from European countries," Departmental Working Papers of Economics - University 'Roma Tre' 0239, Department of Economics - University Roma Tre.

    More about this item

    Keywords

    austerity; competitiveness; European imbalances; current account; fiscal policy; aggregate demand;

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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