Divergent Real Economies in Europe

Pelagidis, Theodore (1997): Divergent Real Economies in Europe. Published in: Economy and Society , Vol. 26, No. 4 (1997): pp. 544-559.

Abstract

In this paper, the well-known convergence programs, implemented by the EU member-states, are closely evaluated. Using descriptive statistical analysis and the changes in the real exchange rates as analytical cornerstone, the paper focuses on the economic performance of the member-states since the accord (Dec. 1991) and the ratification (Febr. 1992) of the Maastricht Treaty. Changes in the trade balance, industrial production, rates of unemployment, inflation and interest rates (short-term and long-term) are used as criteria of success both in real and nominal terms. The statistical outcomes are compared with the ones found in similar research done by R. Gordon. The paper ends with the evaluation of the results and the policy lessons which can be drawn by the different exchange rate policies followed by the member-states.

• Item Type: MPRA Paper
• Language: English
• Keywords: Sacrifice ratio, European Monetary Unification, Convergence criteria, Real exchange rates, Maastricht Treaty.
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F45 - Macroeconomic Issues of Monetary Unions

References

Bayoumi, T. and Eichengreen, B. (1992), "Shocking Aspects of EMU", CEPR Discussion Paper Series No.643, May. _______ (1994), "The Political Economy of Fiscal Restrictions: Implications for Europe from the United States, European Economic Review 38. Collins, S (1988), "Inflation and the European Monetary System", in F. Giavazzi, S. Micossi and M. Miller (eds), The EMS, Cambridge: Cambridge University press. Dornbusch, R. (1988), "The EMS, the Dollar and the Yen", in F. Giavazzi, S. Micossi and M. Miller (eds), the EMS, Cambridge: Cambridge University press. _______ (1989), "Credibility, Debt and Unemployment: Ireland's Failed Stabilization, Economic Policy 8. _______ (1996), "Euro Fantasies", Foreign Affairs, Vol.75, No.5, September/October, pp.110-124. De Grauwe, P. (1995), "The Economics of Convergence Towards Monetary Union", CEPR Discussion Paper Series No.1213. -------(1996a), "Inflation, Targeting to Achieve Convergence in the Transition towards EMU", CEPR Discussion Paper Series No.1457. ------- (1196b), "The Prospects of a Mini Currency Union in 1999", CEPR Discussion Paper Series No.1458. Emerson, M. et al. (1992), One Market, One Money, New York: Oxford University press. Eurostat & DGII (1996), EC Economic Data Pocket Book, No.8-9/1996. European Economy (1990), One Market, One Money, No.44, Brussels: EEC. Feldstein, M. (1992), "The Case Against EMU", The Economist, 13th June. Friedman, M. (1953), Essays in Positive Economics, Chicago: Chicago University press. Giorno, B. et al. (1995), "Potential Output, Output Gaps and Structural Budget Balances", OECD Economic Studies, No.24, 1995/1. Gordon, R. (1996), "Macroeconomic Policy in the Presence of Structural Maladjustment", CEPR Discussion Paper Series No.1493. Gros, D. and Thygesen, N. (1992), European Monetary Integration, London: Longman. Helpman, E., Leiderman, L. and Bufman, G. (1994), "A New Breed of Exchange Rate Bands: Chile, Israel and Mexico", Economic Policy 19, October. IMF (1996), World Economic Outlook, May, Washington, DC: IMF. Modigliani, F, (1996), "The Shameful Rate of Unemployment in the EMS: Causes and Cures", De Economist 144, pp.363-396. Kapstein, E. (1996), "Workers and the World Economy", Foreign Affairs, Vol.75, No.3, May/June. Kenen, P. (1969), "The Theory of Optimum Currency Areas: An Eclectic View", in R. Mundell and A. Swoboda (eds), Monetary Problems of the International Economy, Chicago: The University of Chicago press. Kenen, P. (1994), "Floating Exchange Rates re-considered: The Influence on New Ideas, Priorities and Problems", in P. Kenen, F. Papadia and F. Saccomani (eds), The International Monetary System, Cambridge: Cambridge University Press. McKinnon, R. (1963), "Optimum Currency Areas", AER, Vol. 53, No.3-5. Mundell, R. (1961), "A Theory of Optimum Currency Areas", AER 51. OECD (1996), Economic Outlook, n.59 June, Paris: OECD. Pelagidis, T. (1996a), OCA Approach and the Third Stage of EMU: A Review of Recent Evidence, International Journal of Economics and Business, n.4. ------- (1996b), Europe on the Road to the Third Stage of EMU: Problems and Prospects, Cahiers Economiques de Bruxelles, n.152. Persson, T. and Tabellini G. (1996), "Monetary Cohabitation in Europe", CEPR Discussion Paper Series No.138. Sala-i-Martin, X and Sachs, J. (1991), "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe from United States", NBER Working paper #3855, October. Soros, G, (1996), "Can Europe Work? A Plan to Rescue the Union", Foreign Affairs, Vol.75, n.5. Toporowski, J. (1995), Fascism and the Economics of European Integration, Challenge, Jan./Febr.