Abstract
The early literature critical of the European Monetary Union feared the effects of asymmetric shocks on an area with little intercountry labor mobility and no common fiscal policy. Yet, asymmetric behavior, rather than asymmetric shocks, appears to be at the root of present difficulties. Peripheral countries have seen profligate public sectors incur large deficits and incautious private sectors incur large debts. In addition, wages in the Southern economies have grown more rapidly, and productivity more slowly, than in the North, storing up a medium-run competitiveness problem. Finally, governance standards, rather than converging, have diverged thus potentially jeopardizing the long-run aim of full political union. A plausible explanation for the failure of wage and governance behavior to converge is deep-seated differences in institutions, culture and trust. The potential for such cross-country differences to undermine the success of the Eurozone was neglected in the early analysis of the common currency area.
Similar content being viewed by others
References
Arpaia, CM, Doronzo, R and Ferro, P . 2009: Informatizzazione, trasparenza contabile e competitività della pubblica amministrazione: un’analisi a livello regionale. In: Banca d’Italia (ed) Mezzogiorno e politiche regionali Roma.
Bayoumi, T and Eichengreen, B . 1993: Shocking aspects of European monetary integration. In: F. Torres and F. Giavazzi (eds) Adjustment and Growth in the European Monetary Union. Cambridge University Press: Cambridge.
Boltho, A . 1998: Should unemployment convergence precede Monetary Union? In: J. Forder and A. Menon (eds.) The European Union and National Macroeconomic Policy. Routledge: London.
Boltho, A . 2010: Why do some regional differentials persist and others do not? Italy and Spain compared, 1950–2000. Rivista di Storia Economica 26 (1): 3–33.
Bovi, M and Castellucci, L . 2001: Cosa sappiamo dell’economia sommersa in Italia al di là dei luoghi comuni? Alcune proposizioni empiricamente fondate. Economia Pubblica 13 (6): 77–119.
Brada, JC and Signorelli, M . 2012: Comparing labor market performance: Some stylized facts and key findings. Comparative Economic Studies 54 (2): 231–250.
Carlin, W . 2011: Good institutions are not enough: Ongoing challenges of East German development. CESifo DICE Report 9 (1): 28–34.
Carlin, W . 2012: Real exchange rate adjustment, wage-setting institutions, and fiscal stabilization policy: Lessons of the Eurozone's first decade. CESifo Economic Studies (first published online: 30 June 2012 doi:10.1093/cesifo/ifs025).
Feldstein, M . 1997: EMU and International conflict. Foreign Affairs 76 (6): 60–73.
Fleming, MJ . 1971: On exchange rate unification. Economic Journal 81 (323): 467–488.
Guiso, L and Pinotti, P . 2011: Democratization and civic capital. Quaderni di storia economica, No. 23, Banca d’Italia.
Guiso, L, Sapienza, P and Zingales, L . 2004: Cultural biases in economic exchange. NBER Working paper no. 11005, Cambridge, MA, December.
Ichino, A and Maggi, G . 2000: Work environment and individual background: Explaining regional shirking differentials in a large Italian firm. Quarterly Journal of Economics 115 (3): 1057–1090.
Kenen, PB . 1969: The theory of optimum currency areas: An eclectic view. In: R.A. Mundell and A.K. Swoboda (eds.) Monetary Problems of the International Economy. Chicago University Press: Chicago.
Mundell, RA . 1961: A theory of optimum currency areas. American Economic Review 51 (3): 657–665.
OECD. 1994: The OECD jobs study: Facts, analysis, strategies. OECD: Paris.
OECD. 2012: Economic Outlook. No. 91, May 2012.
Putnam, R, Leonardi, R and Nanetti, R . 1993: Making democracy work. Princeton University Press: Princeton, NJ.
Schneider, F . 2011: Size and development of the shadow economy of 31 European and 5 other OECD countries from 2003 to 2012: Some new facts. mimeo.
Schneider, F and Buehn, A . 2009: Shadow economies and corruption all over the world: Revised estimates for 120 countries. Economics 1 (October): 1–53.
Sinn, H-W and Wollmershäuser, T . 2011: Target loans, current account balances and capital flows: The ECB's Rescue Facility. NBER Working paper no. 17626, Cambridge, MA, November.
Traxler, F and Brandl, B . 2011: Collective bargaining, inter-sectoral heterogeneity and competitiveness: A cross-national comparison of macroeconomic performance. British Journal of Industrial Relations 50 (1): 53–78.
Willett, TD and Tower, E . 1970: The concept of optimum currency area and the choice between fixed and flexible exchange rates. In: G.N. Halm (ed) Approaches to Greater Flexibility of Exchange Rates. Princeton University Press: Princeton, NJ.
Wolf, M . 2012: Why the Eurozone may yet survive. Financial Times, 17.4.
World Bank. 2011: Worldwide governance indicators, http://info.worldbank.org/governance/wgi/index.asp.
Acknowledgements
The authors are grateful to Alberto Bagnai, to the Journal's Editor, Joe Brada, and to an anonymous referee for helpful suggestions.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Boltho, A., Carlin, W. EMU's Problems: Asymmetric Shocks or Asymmetric Behavior?. Comp Econ Stud 55, 387–403 (2013). https://doi.org/10.1057/ces.2012.44
Published:
Issue Date:
DOI: https://doi.org/10.1057/ces.2012.44