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The Euro and Structural Reforms

The Euro and Structural Reforms

(p.57) 2 The Euro and Structural Reforms
Europe and the Euro
Alberto AlesinaSilvia ArdagnaVincenzo Galasso
University of Chicago Press

One of the arguments in favor of the introduction of the common currency area in Europe was that it would pressure member countries to improve their macroeconomic policy and pursue “structural reforms,” the latter being defined as labor and product markets' liberalization and deregulation. High-inflation countries have gained a sound monetary policy with the adoption of the common currency and the European Central Bank. This chapter also investigates the sequencing of goods and labor market reforms. The results show that the deregulation of labor markets is made easier by product market deregulation. However, there are features of the labor market that seem to be useful preconditions for product market deregulation: namely, the reduction of firing costs, and the existence of unemployment benefits. The deregulation of product markets implies labor reallocations across firms and sectors, which require some labor market flexibility.

Keywords:   Europe, euro, structural reforms, labor reallocations, product market, market flexibility

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