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EU policies addressing current account imbalances in the EMU: an assessment

Nina Dodig () and Hansjorg Herr
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Hansjorg Herr: Berlin School of Economics and Law and Institute for International Political Economy (IPE) Berlin, Germany

Working papers from Financialisation, Economy, Society & Sustainable Development (FESSUD) Project

Abstract: To handle the sovereign debt crisis in general and macroeconomic imbalances in particular the leading EU institutions (the Troika) adopted two broad approaches; The short-term approach is based on enhancing the Stability and Growth Pact and to impose fiscal austerity on crisis countries. The medium- to long-term strategy consists of internal devaluation via reducing wage costs. Both approaches were combined with structural adjustment programs in the spirit of the Washington Consensus. The Troika’s policy implies an asymmetric adjustment process burdening only crisis countries. They led to the shrinking of demand and output in crisis countries comparable to the Great Depression and brought the European Monetary Union to the edge of deflation. These polices must be judged as mislead increasing the risk of Japanese disease with more than one lost decade

Keywords: current account imbalances; Euro area economic policies; internal devaluation; austerity (search for similar items in EconPapers)
JEL-codes: E60 E62 F41 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-01-01
New Economics Papers: this item is included in nep-acc, nep-eec, nep-mac and nep-opm
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