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Posts Tagged ‘eurozone macroeconomic asymmetries’

On the performance of the Euro vs. the US dollar (video presentation)

Those who follow this blog will know that I have already published an entry on the index of performance of the euro (1999 – 2018); I commented on the outcomes of an overall index of macroeconomic dispersion among the Eurozone Members States, which can be split up into four (sub) indices: business cycle, competitiveness, public finance and monetary dispersion. I have also reported on the same metrics calculated for the US, so we could compare then with those of the Eurozone. The results are somehow expected, but nevertheless very revealing.

  • Overall macroeconomic dispersion in the US is much smaller than in the Eurozone.
  • Macroeconomic asymmetries within the US states did exacerbate in the crisis years and also in the pre-crisis years, but in the US have quickly returned to pre-crisis levels and remained fairly stable since 2010; whereas in the Eurozone we still have a long way to go.

Of course, some caveats apply in this instance: the US dollar has been a single monetary area for more than 150 years, and indeed a banking union and a fiscal union (with a meaningful federal-central budget) for a long time too. Even with these caveats in mind, what it is very revealing is not that the size of macroeconomic dispersion or internal asymmetries are much larger in the Eurozone, but how differently macroeconomic dispersion has evolved after the crisis: In the case of the Eurozone, particularly as regards monetary and competitiveness dispersion trends, they  show a very strong persistence, revealing (among other things) a more rigid functioning of the price system in goods and services and labour markets as compared to those in the US. The caveats mentioned above may well explain the difference in levels of dispersions, but the changes in trends reveal underlying/structural problems in the way in which markets adjust to crisis in the Eurozone.

We are now extending the results of the project to include the index of dispersion among regions and nations within the UK sterling area, and the (provisional) results confirm the same pattern: the poorer performance of the Eurozone (as measured by internal dispersion) as compared to both the US dollar monetary area and the UK sterling one. We may disagree on the solutions to this problem but we should not simple ignore the facts. ‘All and sundry’ claim that a fiscal union and a pan-EU central budget should be adopted, so counter-cyclical policies can diminish the negative effects of ‘lateral shocks’ (those affecting some MSs considerably more than others) in the future. I do advocate for a different solution, one that requires no further integration, but the devolution of fiscal discipline to the national level. Here it is a the report with my proposal for the re-balancing of the Eurozone.

Here you will find the video to the presentation of the index of the Euro performance (2019) at the European Parliament, in an event organised by the Institute of International Monetary Research in Brussels (29/10/2019). Feedback most welcome.

Juan Castañeda

 

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