Competitiveness and external constraint in the Eurozone

André Sander Diniz () and Frederico Jayme Jr

Brazilian Journal of Political Economy, 2013, vol. 33, issue 1, 17-40

Abstract: The recent debt crisis in Greece, Ireland and Portugal has exposed the fragility existing in the Euro zone for promoting development and economic convergence between the countries that have adopted the currency. Way beyond the fear of insolvency, what is observed is a growing disparity of the most-developed countries in comparison to the less-developed ones, with perverse consequences for the last ones. Once the nominal exchange rates are fixed, the divergent movements in relative prices and wages between the countries have led to totally distinct paths for the real exchange rates. Worsening the scenario, one can observe the incompleteness of the political union, the monetarist focus of the ECB and the lack of labor mobility between the countries, what distances from the argument stated by the theory and puts in jeopardize the future of the Monetary Union. JEL Classification: E42; F33.

Keywords: exchange rate; currency area; inflation; current account; balance-of- -payments constraints (search for similar items in EconPapers)
Date: 2013
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