Asymmetries in the Eurozone and the economies of rebalancing: The time for decisions is exhausted

The initial imbalances within the Eurozone System, especially between "central" and "peripheral" countries, increased after the outbreak of the global financial crisis in 2007, causing more lasting economic damage in Europe than the Great Depression of the 1930s. The asymmetries in the Eurozone are very high, and the whole undertaking is at a crossroads. On one hand, Germany enjoys current account and budget surpluses, mainly as a result of a strong global demand for high quality German exports, an undervalued single currency, low interest rates, domestic wage restraint, and a high domestic savings rate. On the other hand, persistent German surpluses associated with the poor performance of other economies make it harder for the Eurozone as a whole to recover.

The failure by the EU to construct a proper economic and banking union after the crisis and to impose austerity measures instead caused, to a large extent, an incremental rise in populism in Europe.

The purpose of this paper is to record the prevailing asymmetries in the Eurozone, to appreciate the priorities and the different maximization functions of the member countries, to present the economic relations between Germany and southern Europe, to evaluate the cost of the alternative scenarios that can be followed, and to understand in depth the dilemmas of German economic policy.  For Germany, all the decisions that they could take entail very high cost, and under these circumstances, Germany has so far followed a "reluctant" policy. However, the possibility of following such a policy in the immediate future is restricted. The time for making definitive decisions is exhausted.