This text is an extension of Sinn (2012), chapters 1, 3 and 4. It was prepared for the Interparliamentary Committee Meeting at the European Parliament, DG Internal Policies of the Union Policy, Department A – ECON, and presented on 29 January 2013 in Brussels.
Austerity, Growth and Inflation: Remarks on the Eurozone's Unresolved Competitiveness Problem†
Version of Record online: 18 DEC 2013
© 2013 John Wiley & Sons Ltd
The World Economy
Volume 37, Issue 1, pages 1–13, January 2014
How to Cite
Sinn, H.-W. (2014), Austerity, Growth and Inflation: Remarks on the Eurozone's Unresolved Competitiveness Problem. World Economy, 37: 1–13. doi: 10.1111/twec.12130
- Issue online: 13 JAN 2014
- Version of Record online: 18 DEC 2013
While the financial protection measures enacted by the ECB and the community of Eurozone members have calmed financial markets, they have left the competitiveness problem of the Eurozone's southern countries and France unresolved. The paper compares price inflation before the crisis with the necessary and actual price cuts that have taken place since the outbreak of the crisis, predicting a decade of stagnation for the south and inflation for the north. Keynesian demand policy is counterproductive in the south and unnecessary in the north. The necessary realignment of relative goods prices and current account imbalances can be achieved if market forces are allowed to redirect capital flows to the north instead of being artificially steered to uses they are keen to avoid.