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Further Austerity and Wage Cuts Will Worsen the Euro Crisis

Author

Listed:
  • Andini, Corrado

    (University of Madeira)

  • Cabral, Ricardo

    (University of Madeira)

Abstract

This note argues that the solutions to the euro-area crisis proposed by the EU governing institutions in cooperation with the IMF, based on further austerity and wage cuts, will worsen the crisis. They are unlikely to reduce both sovereign and external debt ratios of countries experiencing these problems. Quite in contrary, they are likely to further reduce the real GDP growth of these countries.

Suggested Citation

  • Andini, Corrado & Cabral, Ricardo, 2012. "Further Austerity and Wage Cuts Will Worsen the Euro Crisis," IZA Policy Papers 37, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izapps:pp37
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    File URL: https://docs.iza.org/pp37.pdf
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    References listed on IDEAS

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    1. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
    2. Ponticelli, Jacopo & Voth, Hans-Joachim, 2020. "Austerity and anarchy: Budget cuts and social unrest in Europe, 1919–2008," Journal of Comparative Economics, Elsevier, vol. 48(1), pages 1-19.
    3. Arestis, Philip & McCauley, Kevin & Sawyer, Malcolm, 2001. "An Alternative Stability Pact for the European Union," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 25(1), pages 113-130, January.
    4. Olivier Blanchard, 2007. "Adjustment within the euro. The difficult case of Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(1), pages 1-21, April.
    5. repec:ebl:ecbull:v:6:y:2008:i:25:p:1-11 is not listed on IDEAS
    6. Augusto Graziani, 2002. "The Euro: An Italian perspective," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(1), pages 97-105.
    7. Corrado Andini, 2008. "Portugal and the competitive disinflation: let the data speak," Economics Bulletin, AccessEcon, vol. 6(25), pages 1-11.
    8. Ray Barrell & Sylvia Gottschalk & Dawn Holland & Ehsan Khoman & Iana Liadze & Olga Pomerantz, 2008. "The impact of EMU on growth and employment," European Economy - Economic Papers 2008 - 2015 318, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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    Citations

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    Cited by:

    1. Scharpf, Fritz W., 2014. "No exit from the euro-rescuing trap?," MPIfG Discussion Paper 14/4, Max Planck Institute for the Study of Societies.
    2. C.J. Polychroniou, 2012. "Neo-Hooverian Policies Threaten to Turn Europe into an Economic Wasteland," Economics Policy Note Archive 12-01, Levy Economics Institute.
    3. DUTCAS, Monica Florica, 2020. "The Changing Labour Market: Digitization, Unemployment Trends, And The Minimum Wage," Journal of Financial and Monetary Economics, Centre of Financial and Monetary Research "Victor Slavescu", vol. 8(1), pages 15-25, October.

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    More about this item

    Keywords

    euro crisis; austerity; wage cuts;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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