Strategies of Success for the European Periphery. Insights from Regional Economics for Southern Europe

The crisis-ridden countries of southern Europe find themselves in a situation comparable to the one of flagging regions within a country: both are members of a currency union – the euro area in the first case, and the common national currency in the second. In both cases, a key policy instrument in times of crisis, i.e., currency devaluation, is not available and can only be substituted internally via a correction of price-per-output levels. In most cases this requires wage cuts since productivity increases which could also reduce unit labour costs cannot be achieved in sufficiently short time.