Centrifugal Tendencies in the Euro Area

The adoption of the euro by Southern European states brought into sharp relief the structural problems of their economies, leading to increased deficits in their current transactions. Yet, before the onset of the world economic crisis, the euro had a beneficial impact on the economic growth of these states as a consequence of real interest rates being lower than the euro area average. Since the crisis, the flow of funds to these countries has sharply diminished, resulting in the crisis shock being much stronger in Southern Europe than in the states of the euro area that present small deficits or surpluses in their current transactions. In Southern Europe the euro makes economic fluctuations even more pronounced and the management of recession much harder - to the point where the very cohesion of the euro area is at stake.

The fact that real wages in Germany have not experienced an upward trend throughout the 2000s, partly explains Southern Europe's deficit in current transactions. But it also explains the economic tensions that have arisen within the Franco-German axis. The stagnation of German demand has impacted negatively France, whose economic interests are rallying in favour of a 'competitive' exchange rate for the euro, while in Germany a high exchange rate is preferred instead.

In the long run, the cohesion of the euro area cannot be guaranteed unless a complete integration of the Economic and Monetary Union is striven for: Through the creation of effective mechanisms to deal with asymmetric shocks as well as the coordination of national economic policies with the aim of reducing national and social inequalities.