Does Austerity Go Along with Internal Devaluations?

Lambertini, Luisa; Proebsting, Christian

doi:10.1057/s41308-019-00086-0

Cited by 5 publications

(3 citation statements)

References 41 publications

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“…Regarding mechanisms through which fiscal consolidation policies operate, the cases of Greece, Spain, Italy, and Portugal suggest the dominance of the internal devaluation driver. Lambertini and Proebsting (2019) shows that the austerity packages implemented by these countries during 2010–2014 were partially successful in generating internal devaluations. According to Alesina et al (2018), in OECD economies, fiscal consolidations based upon expenditure cuts are much less costly than those performed on the tax side.…”

Section: Literature Reviewmentioning

confidence: 99%

Back to the Future: Lessons from the 2009–2012 austerity policies for the aftermath of the COVID crisis

García

Bengoechea

2022

Global Policy

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This paper studies the relationship between austerity intensity and adjustment processes in the Eurozone in the period 2000–2021. We empirically analyse fiscal consolidation and its impact on a set of internal adjustment and expansionary austerity indicators. We also evaluate the relationship of those indicators with GDP growth using quantile regressions. Results show that austerity programmes had a negative impact on growth both in the short‐run and in the long‐run. Expansionary austerity indicators play a more relevant role in determining short‐term growth than internal adjustment. This effect is more intense in slow‐growing countries since internal adjustment processes take more time to operate.

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Section: Literature Reviewmentioning

confidence: 99%

Back to the Future: Lessons from the 2009–2012 austerity policies for the aftermath of the COVID crisis

García

Bengoechea

2022

Global Policy

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“…A recent dynamic stochastic general equilibrium (DGSE) analysis suggests that eliminating austerity would have substantially reduced output loss in the periphery (House et al, 2019). Another recent work shows that the type of ID induced by fiscal austerity in the EA during 2010–2014 was not able to raise exports significantly and the improvement in the current account was exclusively due to lower imports as a result of the weakened domestic demand (Lambertini and Proebsting, 2019).…”

Section: The Politics Of Internal Devaluationmentioning

confidence: 99%

The Political Value of Internal Devaluation in the Euro Area Crisis

Xifré

2020

Global Policy

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To overcome the euro area (EA) crisis, the core pushed the periphery to cut labour costs. However, this paper documents that internal devaluation (ID) only mildly improves exports and it can significantly harm firms' non-price competitiveness factors. This raises the question of whether ID entered the bail-out conditionality only for economic reasons or also with political motivations. We argue that the economic crisis reignited a trust-confidence crisis between the core and periphery countries, with the latter emerging as non-credible reformers. While some adjustment to regain competitiveness was necessary in the periphery, it is hard to conceive that the policy mix adopted was the outcome of taking all costs into account. Political reasons appear to have exerted a notable influence and this may undermine the effectiveness, ownership and sustainability of present and future reforms. Policy implications • Policy responses to recover competitiveness in the euro area by recommending the periphery engage in strong forms of internal devaluation are suggestive of political motivations by the core. Crisis resolution plans involving the core-periphery divide will be unavoidably politically charged, but crisis management should put careful analysis ahead of ideology and combine internal devaluation with the appropriate fiscal and monetary policies. • The economic crisis that started in 2008 reignited another crisis: a core-periphery trust-confidence crisis, as the periphery governments emerged from the crisis as non-credible reformers during the first years of the EMU. Any successful attempt to reform the economic governance of the EA and the EU requires that the periphery first improves their credibility by adopting genuine reforms. • Under this proviso, a smart policy to facilitate the economic convergence across the EA and the EU and to sustain political stability in the region would be to emphasise the importance of structural reforms aimed not only at moderating wages, but also enhancing 'non-price/cost' factors, such as investing in innovation capacity and the education system, and improving the quality of institutions.

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“…Difficulties in restoring competitiveness through internal devaluation was confirmed by the ex-post assessment for Greece's 2010 program (IMF, 2013c) and Portugal's 2011 program(IMF, 2016). More recent evidence also suggests that the output costs of external adjustment via internal devaluation were higher than anticipated in some euro area countries during 2010-14(Lambertini and Proebsting, 2019).…”

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confidence: 95%

Growth and Adjustment in IMF-Supported Programs

2021

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Established in 2001, the Independent Evaluation Offi ce (IEO) conducts independent and objective evaluations of the IMF's policies, activities, and products. In accordance with its terms of reference, it pursues three interrelated objectives.▶ To support the Executive Board's institutional governance and oversight responsibilities, thus contributing to accountability.▶ To enhance the learning culture within the Fund by increasing the ability to draw lessons from experience.▶ To strengthen the Fund's external credibility by enhancing transparency and improving understanding of the work of the IMF.Independence is the fundamental anchor of the IEO's work. It is completely independent of the IMF's management team and staff, and operates at arm's length from the Executive Board. Its budget is separate from the Fund's (it accounts for about 0.5 percent of the institution's total budget), but subject to the same control procedures. The IEO is entitled to access any internal information and documents and does with very limited exceptions. The offi ce's work is evaluated periodically by external experts.

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Does Austerity Go Along with Internal Devaluations?

Cited by 5 publications

References 41 publications

Back to the Future: Lessons from the 2009–2012 austerity policies for the aftermath of the COVID crisis

Back to the Future: Lessons from the 2009–2012 austerity policies for the aftermath of the COVID crisis

The Political Value of Internal Devaluation in the Euro Area Crisis

Growth and Adjustment in IMF-Supported Programs

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