Seyfettin Gürsel, Zümrüt İmamoğlu and Ayberk Yılmaz
As the European countries are trying to recover from the global crisis, Europe’s common currency area is facing problems. As the austerity measures, public debt burden is pushing for, are preventing more stimuli for domestic demand, the Southern economies are feeling the need for a boost to exports to drive them out of the recession. But the Euro is an obstacle against a real exchange rate depreciation which could be a quick way of gaining competitiveness in the short run. In this research brief, we compare the growth performance of the PIIGS and the Eastern European countries and their real exchange rate depreciations. Has the Euro been a fetter for the PIIGS and the countries that peg their currencies to the Euro? We find that the euro-pegged Croatia and Italy, Spain and Greece among the Southern euro area economies seem to have suffered the most from the Euro. Among the Eastern European countries who have not yet adopted the Euro, Czech Republic, Poland and Hungary benefited from sizable depreciations. Although a depreciation of the real exchange rate cannot be a single recipe for economic growth, our brief overlook shows that those countries who were not fettered by the Euro did in fact get a boost in terms of economic growth, and those who were fettered suffered more.
doc. ResearchBrief122
pdf. ResearchBrief122