Why is it so Difficult and Complex to Solve the Euro Problem?

Sakir Yilmaz and Burak Saltoğlu

Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester

Abstract: This paper discusses the complexities and challenges in finding a stable long-run solution for the Eurozone crisis. We first discuss the macroeconomic and structural differences among North and South European countries. Focusing on trade, labour productivity and balance of payments data, we show that periphery’s current account deficits are endemic and closely follow economic growth. Our analysis suggests that while German stagnant wage policy might have contributed to the building up of imbalances within the Eurozone to an extent, monetary policy by ECB, deficit-dependence of growth in Southern Europe and the cheap-credit environment of pre-crisis period also played major roles. In addition, we analyze the feasibility of policy proposals for saving the Eurozone, evaluating potential costs/benefits and reviewing the pros and cons of the newly established European Banking Union. We conclude that since the problems in Southern Europe are structural, an active industrialization policy in these countries and a partial fiscal union are essential for a sustainable long-run solution. Furthermore, the Banking Union as it is, is far too immature to have a quick impact on the problem. The costs of the necessary long-lasting reforms and regulations in the Eurozone can exceed short-run benefits. Therefore, a strong political will power with less attention to the short run benefits is necessary for a successful recovery.

Pages: 42 pages
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hummedia.manchester.ac.uk/schools/soss/cgb ... apers/dpcgbcr180.pdf (application/pdf)

Related works:
Working Paper: Why is it so Difficult and Complex to Solve the Euro Problem? (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:man:cgbcrp:180

Access Statistics for this paper

More papers in Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester Contact information at EDIRC.
Bibliographic data for series maintained by Patrick Macnamara ().