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Convergence and Divergences in the European Economy: Rebalancing and Being Competitive in a Non-optimal Monetary Union

  • Ferrán Brunet
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    This paper analyzes the structures, tendencies and challenges of the euro zone due to its non-optimal nature. The impact of the euro is asymmetric and contradictory: in the glorious ten first years a miracle and many bubbles appeared in some euro peripheral economies but they collapsed and enter in an inferno, in a trap despite its rescue by the European Union. The European challenges on competitiveness due to the deficits on productivity and competition are concentrated in the periphery. The virtuous euro zone states, reformed and applying ruled policies, have enlarged their competitiveness. The euroimbalances grew changing the convergence into huge divergences. The structural challenges of the European economy were propelled i) by the non-optimal condition of the euro zone, in particular the no movement of workers, the inflexibility of wages and costs and the no banking union; and b) by the European economic governance deficit, in particular the contradiction between a non-optimal monetary union and the divergent state’ fiscal policies. Europe is an anchor… or a torpedo. The euro zone and its member states are rebalancing, deleveraging and adjusting internally the economies, walking to be competitive. The Union is helping on this, reassessing the added value of Europe. Europe is coming to be an optimal currency area. Nevertheless the Union is suffering from two systemic risks: i) economic because of recession, public failure and credit crunch; and ii) institutional because of having no the instruments of his needs, the emerging euroscepticism, and the tendencies to the disintegration both of the Union and of certain member states. Then there is a need for Europe, acute in many countries. And there is a new task for the Union as regulatory quality developer and even as state builder.

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    File URL: http://www2.uah.es/iaes/publicaciones/DT_03_13.pdf
    File Function: First version, 2013
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    Paper provided by Instituto Universitario de Análisis Económico y Social in its series Working Papers with number 03/13.

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    Length: 38 pages
    Date of creation: Mar 2013
    Date of revision:
    Handle: RePEc:uae:wpaper:0313
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    1. Jean Pisani-Ferry & André Sapir & Guntram B. Wolff, . "An evaluation of IMF surveillance of the euro area," Blueprints, Bruegel, number 629, June.
    2. Blanchard, Olivier J & Milesi-Ferretti, Gian Maria, 2010. "Global Imbalances: In Midstream?," CEPR Discussion Papers 7693, C.E.P.R. Discussion Papers.
    3. Martin Neil Baily & Jacob Funk Kirkegaard, 2004. "Transforming the European Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 353.
    4. C. Fred Bergsten & Jacob Funk Kirkegaard, 2012. "The Coming Resolution of the European Crisis," Policy Briefs PB12-1, Peterson Institute for International Economics.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
    6. Jean Pisani-Ferry & Silvia Merler, 2012. "The simple macroeconomics of North and South in EMU," Working Papers 740, Bruegel.
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