IPP Policy Brief 8, Internal and external rebalancing for Euro area members, by Professor Francesco Franco (NOVA SBE) is based on his speech at the Conference on Socio-Economic Challenges in Southern Europe Competitiveness in the Euro-Mediterranean region, in 2016 in Lisbon.

Francesco Franco clarifies the necessary conditions to achieve a functional monetary zone, underlining three factors: relative price adjustment, fiscal integration and financial integration.

He also outlines a proposal for a stabilisation mechanism based in a mix of a common stabilisation instrument, such as a european unemployment insurance scheme, and structured “fiscal devaluations”, to smooth the impact of asymmetric shocks in the absence of monetary adjustment between Euro area member states.


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