Signaling imbalances in the EMU
Nicola Acocella
Former professor of economic policy, Faculty of economics, Sapienza University of Rome
Please cite the paper as:
Nicola Acocella, (2015), Signaling imbalances in the EMU, World Economics Association (WEA) Conferences, No. 2 2015, The European Crisis, 1st October to 1st December, 2015
Abstract
Markets show well known difficulties in delivering the right signals of looming imbalances, may underreact or overreact to them and cannot properly correct them. Pure monetary union add no significant system of signaling and re-adjustment and can even cause further imbalances. The more so if the asymmetries producing such imbalances have a structural nature, as in this case some markets, such as labour markets, may not work in an appropriate way. In this situation moral hazard and adverse selection are easy to arise, making correction of imbalances more difficult. The system should then be helped to deliver proper signals and to correct them. The OCA theory must be made to work and appropriate non-market institutions, mainly at the union level, should be created. In particular, a common financial regulation, fiscal, industrial and labour policies should be introduced, while devising consistent institutions at the country level.
A REBALANCING SYSTEM INCLUDING A MONETARY DISTRIBUTION SYSTEM COULD BE REALIZED BY MEANS OF THE GCI SCALE.
THE NEW GLOBAL COMPETITIVITY INDEX IS COMPLETED WITH SCORES PER COUNTRY AND COULD BE APPLIED
AS COMPENSATION MEASURE TO DECIDE ANNUALLY ABOUT THE RATES OF COMPENSATION LIQUIDITIES TO BE PERMITTED TO FREELY CONNECTED PARTICIPANTS. THE GCI COULD BE APPLIED TO THE EXTERNAL DEBT AMOUNTS AND THE GDP AMOUNTS PER COUNTRY. A LOW SCORE ON GCI ( ALSO MENTIONED PROSPERITY-INDEX) COULD LEAD TO A HIGH COMPENSATION ( AFFORDITY) AND A HIGH SCORE TO A LOW COMPENSATION. ABSTRACTION SHOULD BE EXCLUDED. A 1 SCORE ON THE SCALE FROM 1-7 WOULD DELIVER 7/7 COMPENSATION AND A 7 SCORE 1/7. TO SWEEP MORAL OBJECTION, THE YEAR AFTER COULD
REVERSE THE APPRECIATION: A 7 SCORE WOULD DELIVER THAN 7/7 COMPENSATION AND A 1 SCORE 1/7 COMPENSATION.
Thnaks for your excellent paper. In your conclusion you wrote: “The system should then be helped to deliver proper signals and to correct them. The OCA theory must be made to work and appropriate non-market institutions, mainly at the union level, should be created. In particular, a common financial regulation, fiscal, industrial and labour policies should be introduced, while devising consistent institutions at the country level”.
Could you be more specific about the scope of industrial policies that should be introduced?
I think this is a real great blog article.Really looking forward to read more. Much obliged.