Ben Emons of PIMCO writes a fab piece on the topic.
He points how labor mobility is one of the major factors which makes US a more optimum currency area compared to Eurozone. Even though US is a better OCA, ECB delivers better inflation performance and growth rate of EU is just 0.5% lower than US (in period 1999-07). So it is not as if a more optimum Currency area helps gain big benefits. This crisis should push Eurozone leaders into more labor mobility:
- Research shows that wage rigidity — defined as wage freezes or cuts as a fraction of total workers – is much lower in the U.S. than the eurozone. Eliminating these rigidities is crucial for the eurozone’s growth as an optimum currency area.
- Albeit painful, the intensity of the debt crisis in Europe may force a quicker progress of reform implementation, which could be a competitive advantage for the EMU in the future.
- Although the U.S. appears to be more of an “optimum currency area” than the EMU, this advantage does not necessarily translate into higher and more sustainable economic growth for the future.