THROUGH A GLASS DARKLY: THE POLITICAL FOUNDATIONS OF SUSTAINABLE EUROPEAN MONETARY UNION.
European Economic and Monetary Union (EMU)'s core countries adopted the single currency with their national collective-bargaining entities, which assigned agenda-setting and veto capacities to wage-setters in their export spheres. Labor market politics (Mihaila and Mateescu, 2017) in the EMU's southern countries, because of their more combative and disunited character, have not been beneficial with regard to wage moderation and low inflation. With higher inflation rates, southern countries swiftly lost effectiveness in their real exchange rates, generating the constant and unsustainable increase of current account deficits compared with the North and the demand for global financing to cover their deficits. (Johnston, 2016)
2. Financial and Monetary Stability throughout the Euro Zone
The monetary union necessitates regulation and substantial cohesion among the members as illustrated by the strategies for "banking union" and "fiscal union" that call for significant political integration by consolidating the entities for democratic harmony and responsibility. The economic advance of the euro zone requires identifying a superior economic stability among the members (Popescu, 2016), wherein creditor economies employ the space applicable to them to maintain economic growth. Adjustment should be more balanced throughout the euro zone. Governments' choices on design, allocation, and resourcing (Pera, 2017a) of the entities set up the background for interinstitutional partnership. Adequate action with respect to the entities was hostage to the resolutions of the member economies that favored them. (Henning, 2017)
3. Did Europe's Monetary Union Advantage Its Low-inflation Performers?
The growing discrepancies between EMU's northern and southern countries that assisted in accelerating crisis exposure (Nica et al., 2016) within the latter may be grasped by how EMU brought about an asymmetrical arena between economies with wage-setting entities (Nica, 2017) adjusted to low inflation and ones lacking them. Within domestic labor markets, the supply of low national inflation via controlled wage growth is conditional on power dynamics between discordant sectoral concerns. The sheltered sphere's ineffectiveness in supplying wage moderation impacts inflation (Popescu and Bitoiu, 2017) and, via the real exchange rate, global price competitiveness. Inflation-averse central banks multiplied the economic penalties related to substantial wage agreements in sheltered spheres. The transfer of inflated wages onto prices should be neutralized by central banks through monetary tightening with the aim of curbing inflation developments. (Johnston, 2016) (Figures 1-4)
4. How Monetary Union Altered Inflation Dynamics in Its Member-states
The Greek fiscal position, the outcome of a patronage-based political system that cut down tax revenue and increased public spending, generated the euro crisis. Economies with distinct forms of capitalism are likely to carry out various growth patterns, grasped as different proposals to achieving economic growth (Nica and Mirica (Dumitrescu), 2017), contingent on the manners in which the configuration of the political economy furthers the production of particular kinds of products and restricts or amplifies the amount of existing mechanisms (Pera, 2017b) for administering the economy. In liberal market countries where trade unions are rather anemic, a demand-led growth approach without much inflation may be feasible, but where unions are active, a flexible macroeconomic position is frequently complemented by reasonable but relevant degrees of inflation. Devaluation counteracts the consequences of inflation on domestic competitiveness (Popescu Ljungholm, 2017) only if nominal wages (Nica, 2016) do not promptly adjust. For the synchronized market countries of northern Europe, monetary union provided a somewhat beneficial setting. As a consequence of how their production is regulated, such economies tend to produce first-rate products of high value. A shared banking union with controlling bodies might have decreased asset booms (Popescu et al., 2017) and fortify the European banking system. In contrast, a central bank qualified in acquiring sovereign debt might have hindered the preliminary impasse of confidence. Institutional strengths for wage coordination were important in the advance to the euro crisis, encompassing those that facilitate diverse types of skill formation and cutting edge key to the long-run growth forecasts of an economy. (Hall, 2017)
Under monetary union, economies without export-sector assisting corporatist entities lost effectiveness compared with their corporatist neighbors, experienced incessantly escalating trade/current account deficits (Popescu et al., 2016), and depended massively on global borrowing, as soon as EMU eliminated prior limitations that enabled sheltered employers to supply wage moderation. In being unsuccessful to harmonize sectoral and domestic labor markets parallel to monetary policy (Nica et al., 2017), the EMU strategy established a disproportionate blending between a global monetary policy and domestic labor markets that has compelled economies to depend on national corporatist entities to adjust. EMU's core countries controlled corporatist entities that gave wage-setters in the export sphere, or the state, veto capacities over countrywide collective bargaining, and thus enabling employers to maintain delivering wage moderation (Popescu and Ciurlau, 2017) under the novel regime. (Johnston, 2016)
Received 29 November 2016 * Received in revised form 25 June 2017
Accepted 27 June 2017 * Available online 29 August 2017
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GHEORGHE H. POPESCU
Center for Applied Macroeconomic Analysis
at AAER, New York; Dimitrie Cantemir Christian University, Bucharest
Bucharest University of Economic Studies
Bucharest University of Economic Studies
FLORIN CRISTIAN CIURLAU
Dimitrie Cantemir Christian University, Bucharest
Caption: Figure 1 Eurozone Real Fixed Investment
Caption: Figure 3 Long-term interest rates
Caption: Figure 4 Euro zone growth expectations
Figure 2 GDP growth in 2017 Romania 5.4% Ireland 4.3% Malta 4.3% Luxembourg 3.8% Slovakia 3.6% Sweden 3.6% Spain 3.4% Bulgaria 3.3% Poland 3.3% Cyprus 3.0% Croatia 2.8% Czech Republic 2.4% Slovenia 2.4% Hungary 2.3% Lithuania 2.2% Germany 2.1% Latvia 2.1% United Kingdom 2.1% Netherlands 1.9% Austria 1.7% France 1.5% Belgium 1.4% Estonia 1.3% Denmark 1.2% Portugal 1.1% Finland 1.0% Italy 0.9% Greece -0.3% U.S. 1.8% Japan 0.9% Note: Table made from bar graph. Sources: European Commission and our estimations
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|Author:||Popescu, Gheorghe H.; Alpopi, Cristina; Comanescu, Mihaela; Ciurlau, Florin Cristian|
|Publication:||Economics, Management, and Financial Markets|
|Date:||Sep 1, 2017|
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