CAROLINE MÜRER ROHDE-MOE: The Eurozone: Impact on Spain after the implementation of the Euro. A unique attempt at European economic integration was made in 1999 with the introduction of the common currency for the Eurozone countries.
The Theory of Optimal Currency Areas
Capital mobility is essential for a currency union because it is important for member states to be able to easily transfer capital across borders without incurring high transaction costs in the process. He argues that when a shock occurs in the economy, it is important for the currency union to have price and wage flexibility that allows the corrective adjustments to be made to help all member countries.
Government Debt and Common Currencies
Many researchers have been concerned about the consequences for the dollar's global position as a result of the introduction of a common European currency. On the other hand, it is found that the introduction of the euro will cause a significant decrease in the international stock of dollars.
The Eurozone Crisis
This Disparate Experience of Ireland, Portugal, Spain, and Greece
An interesting measure to look at is the debt-to-GDP ratio of the nations in the Eurozone, in order to get an idea of the development that the various countries have had under the currency union. The debt-to-GDP ratio provides an indication of a country's ability to repay its future debt. It is a good way to compare the different experiences that member countries have had with the implementation of the common currency.
A divide now exists between France and Germany on the one hand, where debt fell slightly in the third quarter of the second, and the economies of Ireland, Greece, Portugal, Spain and Italy, whose debt-to- GDP ratio rose in July. -September period. Due to the fact that the economies of Spain, Ireland, Greece and Portugal struggled a lot after the economic crisis in 2008, it is interesting to look in more detail at their debt to GDP ratio. The values in Table 1 show that the debt to GDP ratios of Ireland, Greece, Portugal and Spain all rose significantly over the period measured, while the debt to GDP ratios of Germany, France and the United Kingdom remained more stable has.
Spain's debt to GDP ratio in the first quarter of 2013 was 88.2%, which is not as high as the other three countries just discussed. Spain is a bit below the other nations on this chart, but one has to consider the fact that the country's debt to GDP ratio increased significantly after 2011. All these countries have large economies that are all a large part of the total eurozone economy.
A Europe-Wide Solution – Monetary Policy
The UK is a country that has its own monetary policy and has a much freer labor market than Spain, so we can expect the UK and Spain to be quite different in many areas. France is expected to be similar to Spain in many areas, but as the data shows, it will show which areas caused Spain to suffer after the implementation of the euro. One problem that the smaller peripheral countries in particular have encountered is that the control that individual countries have over the common monetary policy for the Eurozone is very small.
A stronger economic country, such as Germany, is more likely to dominate due to the fact that Germany had the best monetary policy to begin with, so in many ways this country has more to say when implementing decisions. big. In the future development of the currency union, it will be important to equalize the power relations between the member countries. After interviewing many people to get different perspectives, Lars Jonung and Eoin Drea (2010) in their research concluded that the currency union in the Eurozone would encounter many difficulties due to the fact that there is a significant difference between the needs of monetary policy between two countries like Ireland and Italy, and with a single currency it cannot have that.
Therefore, it will be difficult to implement a common monetary policy that will solve the problems for each of the individual member countries in the Eurozone. Therefore, this point illustrates that the common monetary policy imposed on all member countries is the main issue that has caused some countries to have more difficulties than others, such as the case of Spain.
Spain
Detailed Analysis of the Spanish Labor Market
In this section, I have researched different parts of the Spanish labor market to understand the reasons for the issues that can be observed in the country today. The Spanish labor market is highly dual, with around 30 percent of the workforce on temporary or fixed-term contracts. However, Jaumotte also argues that in order to reduce the unemployment rate, the reduction of the protection of permanent workers should be combined with a decentralization of collective agreements in the workplace.
A reaction due to a combination of the greater gap between the dismissal costs of workers with permanent and temporary workers and the looser rules on the use of temporary contracts in Spain than in France. This paper argues that the different combinations of unemployment protection and unemployment benefits the extent of the difference in the. As a result of the better protection of the workers, the associated wages will rise for all workers because the employer takes this into account when hiring new employees.
This framework can therefore explain that part of Spain's extremely high unemployment is the result of the country's strict labor protection legislation. The graph also shows that the share of temporary employment in Spain is higher than in any other country. On the next page, I calculated the average ratio of the strictness of permanent employment regulations to the same measure for temporary employment, shown in Figure 17.
ASRPE/ASRTE
Loukas Karabarbounis (2013) in his work defined the labor wedge as the gap between the marginal rate of substitution between leisure and consumption and the marginal product of labor caused by taxes. In equilibrium, the marginal degree of substitution between consumption and leisure is equal to the marginal product of labour. However, the effect taxes have on a country's economy depends on whether the substitution effect or the income effect is dominant in the nation.
Therefore, if the substitution effect is the dominant effect in a country's economy, an increase in taxes will result in a decrease in hours worked. Therefore, if the income effect is the dominant effect in the country's economy, an increase in taxes will lead to an increase in hours worked. In his research, Prescott compared actual hours worked with the predicted amount of hours worked in the periods 1970-1974 and 1993-1996 for different countries.
The results showed that between these two periods the European countries had a much greater decrease in hours worked than the USA. It also made it possible to determine that the substitution effect was dominant in the European countries because the increase in taxes led to a decrease in hours worked (Prescott, 2004). Therefore, one can assume that if the substitution effect is dominant in the Eurozone countries, an increase in taxes will give the workers an incentive to prefer more leisure and therefore the result is fewer hours worked.
1 The Household
He concluded that the reason lies in the tax rate and the previously described effects.
2 Firm
3 Equlibrium
The marginal rate of substitution is the slope of the indifference curve (in absolute value). The real after-tax wage is the slope of the budget line (in absolute value). We always show graphically that the slope of the indifference curve is the same as the slope of the budget line.
The marginal rate of substitution is the slope of the indifference curve (in absolute value). The real wage after taxes is the slope of the budget line (in absolute value). The real wage after taxes is the slope of the budget line (in absolute value).
The size of the labor wedge may therefore depend on factors other than tax rates. The size of the labor wedge could do that. therefore depend on factors other than tax rates. The size of the labor wedge may therefore depend on factors other than tax rates.
Deviations of the Price Level From Trend
However, this apparent success in the first years of the monetary union, when it seemed as if the member states' economies were growing closer to each other, was not true. In the years following this downturn in the economy, you can see how some eurozone countries have had a tough time economically. Spain is one of the countries with the highest and fastest growing unemployment rates in the Eurozone.
Some of the measures I looked at gave credence to the idea that this is a problem for the Eurozone and not for each individual country. However, the values were similar, giving more credence to the idea that it is the common monetary policy that is the problem for the member states of the currency union. However, some of the other metrics I looked at showed results that support the idea of country-specific problems in individual eurozone countries.
This is particularly a problem in Spain, as large proportions of Spanish workers are hired on temporary contracts. I also looked at the deviations from the trend of the inflation rates of the eurozone countries in the period 2002-2012. That is why the single monetary policy for all members of the monetary union is one of the problems.
