Why Is the Eurozone’s Leverage of Competitiveness Neglected in Economic Theory?

Abstract

The purpose of this paper is to explain the relative neglect of the Euro’s leverage of competitiveness and the differential impact of the common currency on the competitiveness of the Eurozone countries. Since the Eurozone’s leverage of competitiveness is not widely recognized, it is first simply demonstrated here by means of an apt analogy with handicap sports, such as horse racing and golf. The importance of the competitiveness leverage is then examined by reference to the contrasting experience of Greece and Germany. Finally, it is argued that there is a discordance between economic theory (and particularly the theory of international trade) and the concept of competitiveness. This extends across a number of dimensions, ranging from historical origins, ideology and methods to fundamental theory. This dissonance has led to a disregard of competitiveness by mainstream academic economics, not only in the context of the optimal currency area literature but also more generally, and constitutes the reason for the neglect of the Eurozone’s leverage of competitiveness.