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Austerity & Competitiveness in the Eurozone: a misleading linkage

Walter Paternesi Meloni ()

No 223, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: After focusing on fiscal indiscipline, the debate on the Eurozone crisis switched over persistent external imbalances among the European Monetary Union countries. Current account differentials were almost exclusively ascribed to the weak price competitiveness of deficit countries – neglecting demand-side factors – and consequently austerity measures have been imposed to peripheral countries in order to foster their competitiveness with the purpose of adjusting external imbalances through export growth. In this context, the contribution of this paper is twofold. Firstly, we identify this view as competitive austerity (in parallel with the expansionary austerity narrative), as the set of measures which, according to policy makers, would stimulate trade balance, output and employment. Secondly, we criticize this approach since fiscal restraints were proved to be counterproductive. We conclude by disproving the austerity-competitiveness linkage from a Keynesian perspective as well as by means of some macroeconomic evidence, and we provide an alternative recipe for the Eurozone issues.

Keywords: austerity; competitiveness; European imbalances; current account; fiscal policy; aggregate demand (search for similar items in EconPapers)
JEL-codes: E63 F32 F45 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pke
Date: 2017-09
References: View references in EconPapers View complete reference list from CitEc
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