ABS professor publishes article in Financial Times

21 July 2017

Enrico Perotti, professor of International Finance at the Amsterdam Business School (ABS), published an article in the Financial Times on 10 July. The article describes how a diverse monetary union creates benefits and costs for core and periphery countries.

At present, strong countries benefit from a lower common exchange rate while weak countries can no longer compensate by devaluing. This implies that it is legitimate to expect solidarity among stronger and weaker economies among Eurozone countries.

Perotti’s article Banking union success can be replicated on the fiscal front suggests that a ‘grand bargain between the core and periphery Eurozone will ensure its survival’. Common fiscal initiatives need to be balanced by a transfer of spending power to a common authority. The arrangement is needed is because of the differences in governance among the countries in the monetary union.

Solidarity for stability

According to Perotti: ‘A diverse monetary union is good for growth. It is also very redistributive. In good times, it allows weaker economies to borrow and spend more. In hard times, these weak countries experience fiscal stress as they can no longer devalue. Some solidarity is therefore needed to ensure long-term stability.’

The full article is available here for readers with a Financial Times subscription.
A more extensive analysis can be read at voxeu.org. Please note that readers have to create a free account to access the work.

Published by  Economics and Business