Coping with Imbalances in the Euro Area: Policy Alternatives Addressing Divergences and Disparities between Member Countries

Hein, Eckhard; Detzer, Daniel

doi:10.2139/ssrn.2509355

Cited by 6 publications

(9 citation statements)

References 56 publications

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“…Kalecki's full employment policy proposal from the 1940s implies a macroeconomic policy mix, which has inspired modern post-Keynesian macroeconomics, both in general (i.e. Arestis 2013, Stockhammer 2010, Hein 2017) and more specifically in its application to the Eurozone (Arestis and Sawyer 2013, Hein 2018a, Hein and Detzer 2015a, 2015b.…”

Section: A Kaleckian/post-keynesian Policy MIX For the Eurozonementioning

confidence: 99%

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The Eurozone in Crisis — A Kaleckian Macroeconomic Regime and Policy Perspective

Hein

Martschin

2020

Review of Political Economy

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The current Covid-19 Crisis 2020 has hit the Eurozone in a highly fragile situation, with a weak and asymmetric recovery from the Great Financial Crisis, the Great Recession and the following Eurozone Crisis. These crises have also revealed the weaknesses of the macroeconomic policy institutions and strategies of the Eurozone based on New Consensus Macroeconomics (NCM). Applying a Kaleckian/post-Keynesian analysis of the demand and growth regimes to the EA-12 countries, we show that the internal imbalances within the EA-12 before the Eurozone crisis, with the polarization of current account deficit debt-led private demand boom countries, on the one hand, and of current account surplus export-led mercantilist countries, on the other hand, have been externalized since then. Most of the countries and the EA-12 as a whole have now turned export-led mercantilist. For an economic policy alternative favouring a domestic demand-led regime, we turn towards Kalecki's macroeconomic policy proposals for achieving and maintaining full employment in a capitalist economy by government deficit expenditures, in combination with redistribution policies in favour of labour and low-income households, assisted by central banks targeting low interest rates. This approach is then applied to the Eurozone, in order to derive a policy mix which should contribute to a more rapid recovery from the Covid-19 Crisis and to a medium-to long-run non-inflationary full employment domestic demand-led regime, on the one hand, and to sustainable catching-up of the periphery of the Eurozone with respect to the more mature centre, on the other hand.

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Section: A Kaleckian/post-keynesian Policy MIX For the Eurozonementioning

confidence: 99%

“…For an elaboration on Steindl's notion of stagnation as a political trend and its application to stagnation policies in the Eurozone, seeHein (2018a).12 This section is based on Hein (2018a). For more extensive elaborations of the approach seeHein and Detzer (2015b).…”

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The Eurozone in Crisis — A Kaleckian Macroeconomic Regime and Policy Perspective

Hein

Martschin

2020

Review of Political Economy

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“…First, the role of public deficits and debt in order to provide global demand at a reasonable growth rate would have to be accepted, in particular for governments being able to go into debt in their own currency. For the Eurozone, as the main current drag of global demand, this would mean the unconditional backing of government debt of member countries by the European Central Bank, as suggested by De Grauwe (2013), Hein (2017) and Hein and Detzer (2015b;2015c), on the one hand, and the use of fiscal deficits in the short and in the long run to stabilise aggregate demand, without relying on external sector deficits and hence current account surpluses. Second, to the degree that current account surpluses of slowly growing mature economies, and current account deficits of catching-up economies are unavoidable, stable long-term financing of these current account deficits would have to be provided in order to avoid unsustainable booms, 'sudden stops' and capital flight.…”

Section: Economic Policy Implicationsmentioning

confidence: 99%

“… See Hein and Detzer (2015b;2015c) for an outline of how this stable recycling could be facilitated in the Eurozone. 11 For similar ideas and more extensive elaborations see for example the 'wage-' or 'mass income-led' recovery strategies proposed by the ILO (2012),Lavoie and Stockhammer (2013a;2013b) andStockhammer and Onaran (2012;, among others, as well as the more encompassing notion of a 'Global Keynesian New Deal' by Hein (2012, Chapter 7),Hein and Mundt (2012) andHein and Truger (2012/13).…”

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Financialisation and tendencies towards stagnation: the role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007–09

Hein

2019

Cambridge Journal of Economics

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This paper argues that the re-emergence of stagnation tendencies in modern capitalism can be related to financialisation and its macroeconomic failures leading to the recent crises, and in particular to the macroeconomic responses towards the crisis and the respective regime shifts in mature capitalist economies. The focus of the paper is on the latter, and it examines the regime changes for six mature capitalist economies, the two liberal Anglo-Saxon economies of the USA and the UK, a representative country from the Nordic welfare states, Sweden, the three important Eurozone countries France, Germany and Spain, as well as the core Eurozone (EA-12) as a whole. The concept of macroeconomic regimes under the conditions of financialisation is recapitulated, applied to the period before the crisis, and finally the regime changes during and after the crisis are examined. It is shown that a dominant tendency towards export-led mercantilism, in particular in the Eurozone and its main member countries, imposes an aggregation problem on the global economy and thus contributes to stagnation and rising global macroeconomic risks. Finally, short- and long-run alternative policies to deal with these problems are suggested.

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“…The ongoing crisis in Europe has raised questions about structural imbalances in the eurozone and the sustainability of the EMU's current structure (De Grauwe 2006;Dullien/Fritsche 2009;Nikiforos et al 2015). This literature points to renewed interest in the conditions for successful monetary union, and to a need for concrete discussions about specific institutions and policies that can contribute to a more stable EMU (De Grauwe 2012;Hein/Detzer 2014).…”

Section: Introductionmentioning

confidence: 99%

A proposal for a federalized unemployment insurance mechanism for Europe

Davis

Konstantinidis

Tripodis

2017

European Journal of Economics and Economic Policies: Intervention

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The ongoing crisis in the eurozone, together with growing evidence of structural imbalances, points to a role for new institutions to support a more stable European Monetary Union (EMU) structure. As is well established in the context of monetary union when business cycles are not synchronized, a system of fiscal transfers can support monetary union. Unemployment insurance (UI) is, in particular, a key component of fiscal crisis management. UI supports household incomes during downturns, and also acts as an automatic stabilizer, thereby helping individual countries respond to asymmetric shocks. This paper proposes a 'federalized' EMU-level UI mechanism as one program that can contribute to a system of fiscal transfers in the EMU, and estimates the cost of the proposed system under different financing and eligibility scenarios. We find that, under a variety of reasonable institutional parameters, such a system is fiscally feasible with limited reason to expect adverse employment effects in member countries. We conclude that fiscal transfers extended via automatic stabilizers are a productive avenue towards a more stable eurozone architecture.

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Coping with Imbalances in the Euro Area: Policy Alternatives Addressing Divergences and Disparities between Member Countries

Cited by 6 publications

References 56 publications

The Eurozone in Crisis — A Kaleckian Macroeconomic Regime and Policy Perspective

The Eurozone in Crisis — A Kaleckian Macroeconomic Regime and Policy Perspective

Financialisation and tendencies towards stagnation: the role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007–09

A proposal for a federalized unemployment insurance mechanism for Europe

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