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Future of the euro zone after the debt crisis wim koesters, global hr forum 2010.pdf, seoul, korea

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It is not only the European fiscal crisis that weakened the Euro but also severe problems of international competitiveness of some southern EMU member states as well as serious deficiencies of the …

It is not only the European fiscal crisis that weakened the Euro but also severe problems of international competitiveness of some southern EMU member states as well as serious deficiencies of the governance of the Euro zone. In a globalized world such policy failures in one area have repercussions on economies in other parts. This once again shows the necessity for policy-makers to not only take the domestic effects of their measures into account but also the impact on the rest of the world. Even after enacting the two huge rescue programs for Greece (110 bn Euro/ ~ 145 bn $) and for the EU (750 bn Euro/ ~ 996 bn $) it cannot be said that the crisis is already over. Since there is still the danger of the EMU breaking apart and thus doing even more damage to the world economy, it needs determined action by European political leaders. They have to establish and put through sound and credible rules of good governance to make the EMU sustainable. This above all means (1) to enforce the fiscal policy rules to bring about lasting budget consolidation (stability and growth pact), (2) to prevent adverse incentives like e.g. too easy access to loan facilities for highly indebted EU countries, and (3) to establish orderly rules for insolvency and restructuring debt (“haircut”) for those EU countries not able to consolidate and to become internationally competitive again on their own. This last point is important because member states of the EMU are not able to nominally devalue their currency (Euro). They only can bring about a real devaluation by having lower price and wage increases than in the rest of the EMU. Since this is not easy to put through politically over quite some years, alternative measures have to be disposable.

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