22 Jan 2016

Adjustment within the Euro Area: Is it all about competitiveness?

Daniel Gros

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Author: Daniel Gros

Series: CEPS Special Report

The key problem afflicting the eurozone today seems clear: the periphery experienced a large loss of competitiveness during the boom years. In order for these economies to recover, they must restore their competitiveness, ideally by increasing productivity. This contribution shows, however, that the story line is not that straightforward. The drivers of competitiveness might have been more macro than micro in nature. The relationship between productivity and competitiveness is sometimes the opposite of what one would expect; and the link between competitiveness and exports is also much weaker than generally believed.

Daniel Gros is Director of CEPS. An earlier version of this paper was prepared for the 14th Munich Economic Summit on “Competitiveness and Innovation: The Quest for Best", co-organised by CESifo and the BMW Foundation Herbert Quandt, 21-22 May 2015, and published in CESifo Forum, Vol. 16 (3):18-25 (www.cesifo-group.de/ifoHome/publications/docbase/details.html?docId=19173034). He gratefully acknowledges useful comments and suggestions received from Stefano Micossi, who recently completed a related contribution to the “Rebooting Europe – Step 2” project organised by the Centre for Economic Policy Research (CEPR). CEPS has published this latter paper on its website as a companion piece to the present study (see “Balance-of-Payments Adjustment in the Eurozone”, CEPS Policy Brief No. 38, January 2016).