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The Political and Economic Dynamics of the Eurozone Crisis$
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James A. Caporaso and Martin Rhodes

Print publication date: 2016

Print ISBN-13: 9780198755739

Published to Oxford Scholarship Online: April 2016

DOI: 10.1093/acprof:oso/9780198755739.001.0001

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Competitiveness and the European Financial Crisis

Competitiveness and the European Financial Crisis

Chapter:
(p.79) 4 Competitiveness and the European Financial Crisis
Source:
The Political and Economic Dynamics of the Eurozone Crisis
Author(s):

Erik Jones

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198755739.003.0004

There are many ways to explain why Europe was so badly affected by the economic and financial crisis. One of the most popular arguments is that the peripheral countries of the Eurozone suffered from a lack of “competitiveness.” Lacking the ability to restore competitiveness through depreciation of their national currency, these countries were forced to undergo a long and painful process of macroeconomic adjustment. This argument is very plausible. The challenge is to test the underlying causal mechanism. This chapter uses macroeconomic data from the European Commission to see how well the various steps in the argument fit the experience of peripheral countries. What it finds is that the competitiveness argument—while plausible—is unpersuasive. Europe has suffered and these peripheral countries have experienced large and painful macroeconomic adjustments, but competitiveness is not the reason they got into trouble and these adjustments are not the solution to Europe’s problem.

Keywords:   economic crisis, Eurozone, competitiveness, depreciation, macroeconomic adjustment

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