Currency Unions: Some Lessons from the Euro-Zone

Charles Goodhart ()

Atlantic Economic Journal, 2007, vol. 35, issue 1, pages 1-21

Abstract: Whilst there are many sizeable benefits from currency union, the main disadvantage is often the difficulty of adjusting to an asymmetric shock. Such adjustment is easier when the separate countries (regions) in such a union have flexible labour markets, and when there is a federal fiscal system to ease the adjustment process. The euro-zone has neither. We show that the trends in relative unit labour costs have in several recent cases been worsening relative competitiveness, thereby putting the euro-zone under greater centrifugal pressure. Nevertheless the costs of ‘exit’ are so high that it would only probably occur as a consequence of political mis-calculation. Copyright International Atlantic Economic Society 2007

Keywords: currency union; asymmetric shock; euro-zone; relative unit labour costs; exit costs; F33; F36 (search for similar items in EconPapers)

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