Is the Euro the Success that Everyone Seems to Think?
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Look deeper and the euro is not quite the success it may seem.
At first sight, the euro has been an outstanding success. The ECB has delivered what it promised: an anchor for inflation. But look a little deeper, and recall that this promise relates to euro-zone inflation, not inflation in individual euro-zone countries. Although country inflation rates converged in the lead-up to EMU, afterwards there is no sign of any further convergence. Instead we have observed strongly diverging price and output levels.
While the price level in Ireland increased in the first eight years of the euro by 31% and output increased by 44%, for Germany the corresponding figures are 5% and 11%. Thus Ireland had a loss in competitiveness against Germany of 26%. Similar, but not as extreme, numbers as Ireland occurred for Spain, Portugal, Greece and Luxembourg. In general, the higher the growth in the price level, the higher the output growth in that country.
Such a situation is not, in my view sustainable...
KeywordsEuro International currencies
- Wickens MR (2007) “Is the euro sustainable?” CEPR Discussion Paper, no. 6337.Google Scholar