A multi-speed Europe: is it viable? A stock-flow consistent approach

Abstract

International audienceBased on the hypothesis that states that the underlying cause of the crisis in the euro area is a combination of exchange-rate misalignments with uncoordinated wage policies, we explore different exchange-rate arrangements that may help to reduce imbalances between surplus and deficit countries. These alternative configurations of the eurozone, which imply abandoning the common currency to a greater or a lesser extent, are tested with a theoretical four-country stock-flow consistent model. We find that although the different alternatives of a multi-speed Europe vary in their stability and macroeconomic effects, in all cases they produce better results compared to the one that has been observed since the introduction of the euro

The Eurozone: Similarities to and Differences from Keynes’s Plan

“…Deprived of their ability to devaluate, Eurozone countries in crisis seem to be stuck in a "low" equilibrium. Indeed, some heterodox economists argue that the structure of the Eurozone could be modified so as to incorporate this feature of Keynes's plan, that is, the obligation to revise the existing parities within the Eurozone, and hence to devalue or revalue all contracts and financial assets held in a given country of the Eurozone (Lordon 2013;Mazier and Valdecantos 2015). But is this just another of the many solutions that appear to be politically impossible?…”

Stock‐flow Consistent Macroeconomic Models: A Survey

“…The adjustment mechanisms of the eurozone is the topic of another paper , which argues that the creation of a federal budget and issuing of eurobonds could have a stabilizing role. In a similar vein, Mazier and Valdecantos (2015) use a four-country model and suggest that the introduction of a 'multi-speed' Europe, with separate currencies for the north and the south, could have a stabilizing role. The same model is used by Mazier and Valdecantos (2014), who propose the introduction of a clearing union and a Bancor system for the eurozone, arguing that the TARGET2 system provides the necessary infrastructure for the implementation of such a proposal.…”

Monetary Union Viability: A Criterion Proposal

“…Proponents of the Theory of Optimum Currency Areas partially attribute the recession to the failure of the EMU to meet the optimal currency area criteria, which was known when the EMU was created. Other scholars assert that the loss of competiveness of the periphery countries relative to the core countries of the EMU is the fundamental cause of the euro‐zone crisis (Febrero et al ., ; Bibow, ; Stockhammer and Onaran, ; Flassbeck and Lapavitsas, ; Mazier and Valdecantos, ).…”

“…Among the applications of this methodology are those by Godley and Lavoie (, ), which present an SFC model of two economies, each of which sells goods, services and financial assets to the other, and which together form the world economy. Other open‐economy models that are based on this method include those of Lavoie (), for the euro‐zone economy, and Mazier and Valdecantos (), who analyse the viability of the European Monetary Union under different velocities.…”

“…Alberto Alonso and Vanesa Guzmán (2003), for the euro-zone economy, and Mazier and Valdecantos (2013), who analyse the viability of the European Monetary Union under different velocities. The paper is organized as follows.…”