Southern Eurozone Research Articles

Stanowisko Komisji Europejskiej oraz rządów państw członkowskich Unii Europejskiej wobec reformy ustrojowej Unii Gospodarczej i Walutowej (2017-2022)

This article aims to analyse the positions of the European Commission (EC) and the governments of the EU Member States regarding the system reform of the Economic and Monetary Union (EMU). This analysis leads the author to the following conclusions. First, the EC has consistently advocated the creation of three new structures within the existing EMU by the end of 2025 (i.e. the Financial Union, the Fiscal Union and the Economic Union) and a radical extension of the powers of the EU institutions in the financial, fiscal and economic policies of the Member States. On the other hand, some EU Member State governments, notably Germany, Austria, the Netherlands, Denmark and Sweden, were opposed not only to such far-reaching system reform, but also to the pace of its implementation. All the draft laws of the EC went much further than the proposals of the Eurozone Summit or the Eurogroup in terms of system change. Thirdly, the attitude of the Eurozone Member States themselves towards the reform examined was not uniform. While the southern eurozone countries, led by France and Italy, believed that financial solidarity within the eurozone should be understood in the broadest sense, the northern eurozone countries, led by Germany, opposed it. As a result, the differences of opinion between the EU Member States were compounded by controversies between the Eurozone countries, which further complicated the process of reforming the EMU system. Fourthly, the reorientation of the stance of the governments of Germany, Austria, the Netherlands, Denmark and Sweden towards a communitisation of debt in 2020 and 2021, illustrated by the example of the Reconstruction Fund, did not pave the way for resolving the long-standing dispute over the establishment of a European deposit guarantee scheme.

Explaining and correcting trade imbalances between the Northern and Southern Eurozone: An empirical investigation

AbstractIn this paper we take a novel approach to examining the trade imbalances between the Southern Eurozone countries and the Northern Eurozone countries by aggregating them into a Southern Group and Northern Group. We then explore three possible causes of the trade imbalances, which are the fiscal channel, the investment channel and the competitiveness channel. We find that all three channels are important in explaining the emergence and correction of trade imbalances. In particular, we find that an increase in fiscal deficits in the North are twice as effective in reducing trade imbalances than fiscal consolidation in the South. By contrast, increased investment in the North has a similar impact to reduced investment in the South in correcting the trade imbalances. Finally, we find that a depreciation of the South's real exchange rate is associated with a long run deterioration in the Southern Group's trade balance suggesting that the South needs to seek non‐price competitiveness channels to address its trade imbalances.

Demand multipliers and technical performance of a Southern Eurozone economy in hard times: Kalman–Leontief–Sraffa evidence from the Greek economy, 2010–2014

Demand multipliers and technical performance of a Southern Eurozone economy in hard times: Kalman–Leontief–Sraffa evidence from the Greek economy, 2010–2014

Modelling the trade balance between the northern and southern eurozone using an intertemporal approach

We use an intertemporal model to examine the division of the Eurozone area into countries with persistent trade account surpluses and those with persistent deficits. This is done by examining the trade account balances between a Northern group of countries that are in persistent trade account surplus and a Southern group of countries that have persistent deficits over the period 2001–2018. The theoretical model highlights the interaction of consumption, portfolio optimization between holdings of domestic and foreign bonds, fiscal balances, changes in the demand to hold money balances and changes in the pricing of risk in financial markets as reflected in changes in the interest rate differentials. We test the model using both the ARDL and Fully Modified OLS methodologies and find that it performs well empirically with relevant coefficients being both right signed and significant.

Pandemic pushes polarisation: the Corona crisis and macroeconomic divergence in the Eurozone

This paper discusses the uneven consequences of the macroeconomic fallout from the Coronavirus and related economic policy responses against the background of an analysis of longer-term macroeconomic divergence in the Eurozone. We show that the macroeconomic impact of the Corona crisis is estimated to be more severe in Southern Eurozone countries than in Northern Eurozone countries, which further reinforces the tendency of an increasing economic polarisation. This polarisation process can be traced back to existing differences in production structures and uneven vulnerabilities of the underlying growth models. As a consequence, any policy response to the Corona crisis that does not take the deeper problems of structural polarisation into account will suffer from limited impact in the medium to long run.

Southern and Eastern Europe in the Eurozone: convergence or divergence?

ABSTRACTA number of studies have concluded that, contrary to expectations, European monetary union has not reduced income disparities among the 12 Western European member countries. In fact, incomes per capita between Southern and Northern Eurozone members have diverged since the Eurozone was created, in contrast to earlier trends which had seen rapid convergence in living standards across Western Europe. The paper revisits this issue and investigates whether something similar occurred in the five Eastern European countries (Estonia, Latvia, Lithuania, Slovakia and Slovenia) which joined the Eurozone between 2007 and 2015. The conclusion is that, despite similarities with Southern Europe in some areas, overall developments in Eastern Europe were different and led to convergence rather than divergence. Important reasons for this were Eastern Europe's relatively high levels of institutional quality, a politically motivated determination to anchor these countries to the West and, possibly, the legacy of pre-war history.

Ouverture de ‘The New European Industrial Strategy: Companies and Territories’

Europe needs an investment, employment and innovation strategy for new productions driven by the new needs of European citizens. The economic recession of Covid 19 is determined by a collapse in aggregate demand and requires the relaunch of public but also private investments that increase production capacity and diversification towards the new productions required by the needs of European citizens. The increase or the fall of the final demand for private consumption and investments tightly interact with the innovation and investments plans of the companies, with employment changes and with the impact on the natural and physical environment and on the citizen’s quality of life. The international decline of Europe, especially of the Southern Eurozone, relate to a high loss of competiveness, which results from the absence of a common industrial policy, and, on the other side, from the growth of global firms. To address the new problems arising from the structural growth crisis that has characterized European countries in recent years, aggravated by the advent of the recent pandemic, however, a radical change in perspective is needed, giving the territory a new role.

Paradoxes of organizational change in a merger context

PurposeThe reorganization of the Portuguese national healthcare system around networks of hospital centers was advanced for reasons promoted as those of effectiveness and efficiency and initially presented as an opportunity for organizational transcendence through synergy. The purpose of this paper is to study transcendence as felt by the authors’ participants to create knowledge about the process.Design/methodology/approachThe paper consists of an inductive approach aimed at exploring the lived experience of transcendence. The authors collected data via interviews, observations, informal conversations and archival data, in order and followed the logic of grounded theory to build theory on transcendence as process.FindingsTranscendence, however, failed to deliver its promise; consequently, the positive vision inscribed in it was subsequently re-inscribed in the system as another lost opportunity, contributing to an already unfolding vicious circle of mistrust and cynicism. The study contributes to the literature on organizational paradoxes and its effects on the reproduction of vicious circles.Practical implicationsThe search for efficiency and effectiveness through strategies of transcendence often entails managing paradoxical tensions.Social implicationsThe case was researched during the global financial crisis, which as austerity gripped the southern Eurozone gave rise to governmental decisions aimed at improving the efficiency of organizational healthcare resources. There was a sequence of advances and retreats in decision making at the governmental level that gave rise to mistrust and cynicism at operational levels (organizations, teams and individuals). One consequence of increasing cynicism at lower levels was that as further direction for change came from higher levels it became interpreted in practice as just another turn in a vicious circle of failed reform.Originality/valueThe authors contribute to the organizational literature on paradoxes by empirically researching a themes that has been well theorized (Smith and Lewis, 2011) but less researched empirically. The authors followed the processin vivo, as it unfolded in the context of complex strategic change at multiple centers.

Raising the flag among the ruins: the crisis as helping hand for opposition parties?

AbstractWithin the context of the economic downturn in southern Eurozone countries and the imposition of new constraints on national policy-making, this article examines the congruence between party issue prioritization, during and after the electoral phase. This is done through a longitudinal analysis of four countries (Greece, Italy, Portugal, and Spain) and use of party manifesto and parliamentary question data. We found that between the electoral and parliamentary arenas, parties tend to emphasize different issues. However, this occurs in different ways across time, countries, and parties. We propose a measurement of issue congruence in agenda framing between the pre- and post-electoral phases to assess to what extent elections provide a guide for public policies. Moreover, we propose arguments to explain different results in the analyzed countries and across parties. We show that the crisis magnified the capacity of the opposition to maintain programmatic coherence – a helping hand for opposition parties (including the radical ones) that succeeded in boosting the relevance of their signature issues.

Differences in Inward FDI Performance Between the Southern Eurozone and Eastern EU Members: A Panel-Data Analysis Over 2004-2016

Abstract The aim of this paper is to examine the factors that explain the observed differences in inward foreign direct investment (FDI) performance between the peripheral southern eurozone countries (namely Greece and Portugal) and the eight Eastern EU members (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia) that joined in 2004. The empirical analysis, which is based on the estimation of a panel-econometric model during the 2004-2016 period, provides for Greece and Portugal policy relevant insights with respect to improving the international competitiveness and attracting more FDI inflows vis-a-vis Eastern EU countries, which have outperformed the two southern eurozone members. The results indicate that, among other factors, positive differences in labour costs and corporate tax rates between southern eurozone members and Eastern EU member states largely explain the observed differences in inward FDI performance among those two country groups. The higher labour costs and corporate taxation in Greece and Portugal exhibit a strong negative impact on their relative inward FDI performance vis-avis Eastern EU members. Furthermore, differences in economic openness and integration into vertical production networks also have a significant effect on inward FDI performance.

The Global Evolution of Travel Visa Regimes.

The Global Evolution of Travel Visa Regimes.

The static demand multipliers in a joint production framework: comparative findings for the Greek, Spanish and Eurozone economies

This paper uses input–output data from Supply and Use Tables for the year 2010 and provides empirical estimations of the static demand multipliers in a joint production framework for two representative Southern Eurozone economies, i.e., Greece and Spain, and for the Eurozone economy as a whole. The findings reveal certain differentiated features of the economies under consideration, call into question the post-2010 ‘horizontal’ implementation of economic policy measures and, finally, provide a context for formulating well-targeted effective demand management and structural policy programs.

Financial illness and political virus: the case of contagious crises in the Eurozone

This paper investigates the volatility spillover effects from the southern to northern part of the Eurozone during the sovereign debt crisis. Focusing on different phases of the crises, we propose using the dynamic conditional correlation model and the BEKK model to identify possible linkages during the period of 2005–2015. The findings showed that both models behave satisfactorily and are flexible in presenting spillover effects. However, regarding conditional correlations, the asymmetric dynamic conditional correlation model seems to fit better. Additionally, Spain and Italy can significantly damage all strong northern economies, while Greece’s negative shocks are capable of co-moving the French index. Finally, France is the most correlated country within the southern Eurozone.

A qualitative viewpoint on the Southern eurozone highly skilled labour mobility in the metropolitan area of Copenhagen in times of crisis and austerity

The paper explores patterns of skilled labour mobility from the Southern eurozone to the metropolitan area of Copenhagen by means of a qualitative micro-study. The key hypothesis is that in/outflows may not only be a consequence of the present economic crisis but may also rely on the deep-rooted, democratic-socio-cultural aspects or dissimilar policy choices of sending/hosting countries. These same aspects are expected to influence return/circular migration. In contrast to mainstream theories of international migration, this viewpoint is supported by findings which illustrate how non-economic factors can be also crucial and why enhancing beneficial return/circular migration in the Southern eurozone can be incompatible with the application of austerity.

Exchange rate and macroeconomic adjustment in southern eurozone countries

In this paper, we estimate panel cointegration and VEC models to show that, during the pre-euro period, devaluation and/or depreciation of the domestic currency were a recurrent weapon for macroeconomic adjustment in Greece, Italy, Spain and Portugal. Moreover, we perform panel Penn-effect regressions using a sample of 114 countries to prove that during the period 1970–2011 the four countries incurred misalignments of remarkable size and variability in their real exchange rates. All in all, our results reveal that for several decades the four countries needed to use their nominal exchange rate as a tool of macroeconomic adjustment. Since variations of the nominal exchange rate within the EMU are no longer an option, the four southern eurozone countries should accomplish the necessary structural reforms to avoid new and painful internal devaluations in the coming years.

The role of uncertainty in the euro crisis – an application of liquidity preference theory

The world financial crisis triggered a rediscovery of the active role fiscal policy can play as a remedy in such situations. During the euro crisis, escalating funding costs in a number of southern eurozone member states and Ireland have called this strategy into question. One interpretation of the euro crisis concentrated on the public debt trends in those countries. Opposing this view, the main point of this contribution is to elaborate the link between rising interest rates on sovereign bonds in the euro crisis and a major feature of the financial crisis – a subdued degree of investor confidence after the Lehman collapse. Theoretically, this link is developed with reference to Keynes’ liquidity preference theory. The high explanatory power of measures for the degree of confidence in financial markets as well as detrimental effects of fiscal austerity on the evolution of sovereign yield spreads are demonstrated empirically by means of panel regressions and supplementary correlation analyses.

Jingle bells and struggling GIPS: Comparing the Baltic and the southern euro zone’s crisis experience using the varieties of capitalism framework

This article compares the experience of the Baltic countries and the eurozone’s southern members, the GIPS (Greece, Italy, Portugal, Spain), in terms of the run-up to the Great Recession and the eurozone crisis, responses during the downturn, and the subsequent recovery (or lack thereof). It discusses numerous apparent similarities in terms of the build-up of macroeconomic vulnerabilities and the content of anti-crisis strategies pursued as well as the substantially different results of these policies. This article applies the VoC (Varieties of Capitalism) approach. To this end, it presents theoretical expectations regarding different varieties’ vulnerability to macroeconomic imbalances, preferences regarding anti-crisis policy as well as the likely outcome of the internal devaluation strategy. The article finds the VoC approach largely useful, although it is more helpful in accounting for the nature of reaction to the crisis and the outcomes of anti-crisis policy, while less so in explaining the initial accumulation of vulnerabilities.

A “capability view” on migration: some theoretical issues raised by the Southern Euro Zone highly skilled mobility

The Southern Euro Zone countries show significant delays to adapt their social and productive systems to the EU goal of creating knowledge-based societies. A signal can be the increasingly higher level of skilled labor migration from these countries, especially during the actual crisis. Recent literature on skilled migrations often rejects the concept of “brain drain” (BD) arguing that circulation and exchange of people and knowledge is expected in the era of globalization. Using both conceptual analysis and secondary data, the paper attempts to highlight proportions of the intra-EU BD phenomenon and show how they may challenge the assumptions of circular migration models. It discusses that a BD problem likely exists in the Southern Euro Zone and proposes an alternative framework for its analysis. The main hypothesis behind this review is that the phenomenon relies on substantial lack of social opportunities for high-skilled people in the countries of origin as provoked by multiple factors. In this account, the several drivers of migrants' choice will be conceptualized by adopting a “Capability Approach,” and they will be further analyzed according to its foremost hypotheses regarding rational behavior, human welfare, and development. The resulting theoretical view has to be considered as an expansion of the neoclassical economics “standard view” on high-skilled migrations.

The Political Hindrances in Solving the European Sovereign Debt Crisis

Once revered as a progressive supranational success story, the European Union now faces excessive public debt, unemployment, and stagnation partly due to its flawed institutional design. This has become apparent in southern Eurozone countries like Portugal and Greece, which continue to suffer from strict austerity measures imposed by the International Monetary Fund, European Commission, and European Central Bank (Troika). This report examines the politics behind the European Sovereign Debt Crisis, including the rise of Eurosceptic populist parties. Furthermore, it analyzes austerity in southern Europe, the ‘moral hazard’ argument, and the German government’s reluctance to lead Europe out the crisis. This report cautions against such a reluctance, which will allow populist parties to gain a stronger foothold in Europe’s political institutions and disrupt the European project. Due to the shift of the Eurozone’s financial crisis to a political one, it is in the best interest of the European Union and its leaders to continue to integrate its financial, banking, and political institutions in order to face the unique and dynamic political restraints in solving the Euro crisis.

Towards a European Division of Labour: Do Europe’s Crises Highlight Structural Challenges to Sustainable Economic Growth in the Eurozone?

The financial and economic crises of the last few years in many Southern Eurozone countries are generally studied individually, without reference to other such crises in the region. In this note, we argue that they may also be approached as symptoms of an underlying structural challenge facing the EU economy. In many ways the relationship between northern and southern Eurozone countries seems remarkably similar to typical economic centre–periphery relations, yet without the harmonizing role that a national government could play. The occurrence and combination of crises seems to be indicative of what one would expect from the adverse effects of centre–periphery relations among countries. Unfortunately, this would imply that the crises we are currently seeing are likely to continuously reoccur in the near future to the detriment of sustainable economic growth and political-economic stability in Europe.