The Euro Plus Pact: Competitiveness and External Capital Flows in the EU Countries

19 Pages Posted: 14 Apr 2015

See all articles by Hubert Gabrisch

Hubert Gabrisch

Independent

Karsten Staehr

Tallinn University of Technology (TUT) - Department of Finance and Economics; Bank of Estonia

Date Written: May 2015

Abstract

The Euro Plus Pact was approved by the European Union countries in March 2011. The pact stipulates various measures to strengthen competitiveness with the ultimate aim of preventing accumulation of unsustainable external imbalances. This article uses Granger causality tests to assess the short‐term linkages between changes in relative unit labour costs and changes in the current account balance for the period 1995–2011. The main finding is that changes in the current account balance precede changes in relative unit labour costs, while there is no discernible effect in the opposite direction. This suggests that capital flows from the European core to the periphery contributed to the divergence in unit labour costs across Europe prior to the global financial crisis. The results also suggest that the measures to restrain unit labour costs may have only limited effect on the current account balance in the short term.

Suggested Citation

Gabrisch, Hubert and Staehr, Karsten, The Euro Plus Pact: Competitiveness and External Capital Flows in the EU Countries (May 2015). JCMS: Journal of Common Market Studies, Vol. 53, Issue 3, pp. 558-576, 2015, Available at SSRN: https://ssrn.com/abstract=2594065 or http://dx.doi.org/10.1111/jcms.12220

Karsten Staehr

Tallinn University of Technology (TUT) - Department of Finance and Economics ( email )

Akadeemia tee 3-486
Tallinn, 12618
Estonia

HOME PAGE: http://www.ttu.ee/karsten-staehr

Bank of Estonia ( email )

Estonia Building 13
Tallinn, 15095
Estonia

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