Economic and Financial Asymmetries in the Euro Area

This paper provides a perspective on the euro area (EA), focusing on macroeconomic and financial asymmetries among its member states and the need for major and fundamental reforms. After surveying the evolution of EU macroeconomic and monetary cooperation and developments since the creation of the euro, and particularly the euro area crisis, we argue that the euro area is in need of fundamental fiscal, financial and labor market reforms. In addition to reforms currently discussed, a common EA budget of moderate size would help smooth out the asymmetric impact of macroeconomic shocks through the operation of automatic fiscal stabilizers. It would also help countries in recession face smaller national fiscal and financial consequences of such recessions, and would also partly address labor market fragmentation as it could be targeted to euro area wide unemployment and health insurance. It would also help in the avoidance of future crises if the scope of the ECB to act as a lender of last resort in times of crisis was expanded and officially recognized.

This paper was presented to the Tufts/LSE Conference on Greece and the Euro: From Crisis to Recovery on April 12, 2019.

George Alogoskoufis and Laurent Jacque, Economic and Financial Asymmetries in the Euro Area, CGK Working Paper no. 2019-02, Fletcher School, Tufts University, (April 2019)

 

 

 

 

Greece and the Euro: A Mundellian Tragedy

This paper analyzes the process of destabilization, crisis and adjustment in the Greek economy since the accession of the country to the European Union and, subsequently, the euro area. It reviews four policy cycles of the past 40 years, the four acts of the Greek tragedy, and discusses alternative ways forward, following the sudden stop and the great depression of the 2010s. It concludes that despite the significant constraints implied by continued participation in the euro area, namely a stark Mundellian conflict between internal and external balance, exiting the euro area risks further destabilizing the economy and bringing about a return of the problems of the 1980s. The current challenge for Greece is to seek to remain and prosper in the euro area. This would require a policy mix based on supply side reforms which would allow for a sustained recovery without the reemergence of external imbalances.

This paper was presented to the Tufts/LSE Conference on Greece and the Euro: From Crisis to Recovery on April 12, 2019.

George Alogoskoufis, Greece and the Euro: A Mundellian Tragedy, CGK Working Paper no. 2019-01, Fletcher School, Tufts University, (April 2019)

George Alogoskoufis, Greece and the Euro: A Mundellian Tragedy, GreeSE Paper no 136, Hellenic Observatory, London School of Economics (May 2019)