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Economic divergences within the Euro area: lessons for EMU enlargement

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Economic divergences within the Euro area: lessons for EMU enlargement

Agnès Bénassy-Quéré

Oesterreichische Nationalbank’s conference on

“The Euro’s Contribution to Economic Stability in CESEE”

November 16-17, 2009

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1. Microeconomic impact of the euro

• Limited aggregate impact:

 The euro would have raised intra-zone trade by 6% (Micco et al. 2003)

 No impact on consumption prices

• Microeconomic gains:

 More competition (export prices)

 More varieties

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3

Evolution of French exports

Impact of the euro (econometric

analysis)

Composition of growth in value of French manufacturing

exports between 1998 and 2003 according to destination, in %

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Impact of the euro on French export prices

Source: Méjean & Martin (2009).

Gap between export prices to specific areas and average export prices

Lower prices towards the Eurozone

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Impact of the euro on French export prices

Source: Méjean & Martin (2009).

Intensive margins: (firm, product) couples thatare present during the whole time sample.

Intensive and extensive margins

The extensive margins has made the difference

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Impact of the euro on French export prices

Source: Méjean et Martin (2009).

Price dispersion

Before 1999, average price dispersion is lower by 5% in the Eurozone compared to other OECD markets; after the introduction of the euro, the

gap is close to 7%.

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Still, little price convergence within the Eurozone

Source: Ilzkovitz et al. (2007).

Coefficient of variation of consumption prices, including indirect taxes, in %

Source: Eurostat, structural indicators.

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Tax divergence?

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Reform fatigue?

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2. Macroeconomic gains & costs

Credibility gains

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One size does not fit all

Real interest rates (3 months)

Source: OECD.

Euro area Other EU27

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Internal divergences 1

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13 13

Internal divergences 2

Source: OECD.

Bilateral competitiveness

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3. Inadequate policy surveillance

Excess focus on public savings

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15 15

Apparent virtue

Source: Bénassy-Quéré &Polpawski-Ribeiro (2009).

General government balance

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Inflated tax receipts

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« Sudden stops »

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4. Challenges for EMU enlargement

Inflation rates 2006-2036, Euro27

0%

1%

2%

3%

4%

5%

6%

UK Fran

ce Germany

Italy Spai

n

Median Gr.

1

DenmarkIrela nd Sweden

Finland Netherla

nds Luxem

bourg Belg

ium Austria

Greece Portuga

l

HungaryPoland Czech Repub

lic Romania

Media n Gr. 2

Cyprus Slove

niaMa lta

Estoni a

Latvia Slovakia

Lithua nia

Bulgari a

Median Gr.

3

Price convergence implies higher inflation in some countries !

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Risks

Higher inflation

Lower real interest rate

Leverage Bubbles

Solutions

Taxation Financial regulation Fiscal policy

Structural

reforms

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Markets are alive!

Referenzen

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