Policy brief 8 – Internal and external rebalancing for Euro area members

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