Export or Perish: Can Internal Devaluation Create Enough Good Jobs in Southern Europe?

Abstract

During the early 2010s, creditor states and EU institutions demanded that the Southern states of the eurozone liberalize their labour markets to facilitate internal devaluation and export-led recoveries. With some variation, the Greek, Portuguese, Spanish and Italian governments responded complied. This article explains why such a strategy of internal devaluation within the eurozone might fail to produce adequate employment growth to put these countries on stable financial footing. It exploits variation in the timing and intensity of reforms to evaluate the record of the internal devaluation strategy. Our findings suggest that there is no linear relationship between internal devaluation and export-growth.Even where the latter has been impressive, dualism persists and the employment recovery has been weak. AcknowledgementsEarlier versions of this paper were presented at conferences and seminars in Florence, Lake Como, Boston, Groningen, and Madrid. The authors would like to thank participants for their comments, and are particularly indebted to Alexandre Afonso and David Luque Balbona. Detailed suggestions from two anonymous referees are gratefully acknowledged.

Beyond Conditionality: Policy Reversals in Southern Europe in the Aftermath of the Eurozone Crisis

“…When it comes to the evaluation of the reforms passed under conditionality, it must be finally noted that the picture is not as rosy in Spain as sometimes depicted. Perez and Matsaganis (2019) show that while exports and the economy grew in the aftermath of reforms, net job creation during the recovery (2013-2017) compensated for only half of the job destruction during the crisis. Worse, the share of part time employment has increased, with 62 per cent of part-time workers actually preferring to work full time.…”

“…As in Spain, post-conditionality economic indicators are mixed (Perez & Matsaganis 2019). While exports have grown more than the EU average in the post-programme period and although the poverty rate is below its 2008 level, cumulative growth in the 2013-2016 was only half the Spanish level.…”

“…More generally, policy reforms pursued in Italy in the aftermath of the crisis proved less radical than in Spain, Greece or Portugal. An example of this is the internal devaluation measurement, as shown by Perez and Matsaganis (2019). They calculate, for example, that real compensation of employees per hour worked has fallen in Italy much less than in bailed out countries since 2013.…”

“…For Greece, reversals were not considered systematically by the contributions in this volume as the bailout only came to a close in August 2018. Nevertheless, Perez and Matsaganis (2019) analyse the effects of internal devaluation. By any account, the changes in socio-economic governance in Greece were the most farreaching of the countries in the sample analysed here.…”

“…Some articles focus only on structural reforms in Italy, Spain and Portugal (Branco et al 2019;Afonso & Bulfone 2019), whereas another observes all kinds of policies triggered by conditionality in Spain and Portugal. Finally, Perez and Matsaganis (2019) analyse the social effects of reforms of the labour market passed during the crisis in both these countries and Greece.…”