Alternative exchange rate regimes for the euro zone

The analysis of the euro zone crisis in the two previous chapters has shown how the reforms often adopted in emergency have brought partial solutions to avoid a break-up. But a deeper transformation of the institutional framework remains necessary. The way of adjusting internal imbalances is still asymmet- rical. Deficit countries alone are obliged to adjust. Wage deflation and restrictive policies have replaced exchange rate adjustments and competitive devaluations. The alternative policies have been presented and evaluated. They appeared rather unlikely in the political context or with a limited impact or difficult to implement. Furthermore, these proposals would not solve the real problem, that is, the structural differences that make it impossible for southern countries to compete against the German block at the same nominal exchange rate parity. Adjusting the real exchange rate through the so-called internal devaluations may imply an unacceptable social cost. However, the status quo could prevail with only marginal inflexions and would remain fragile. A last alternative can be explored, a calling into question of the single currency itself, to regain rooms of manoeuvre. The re-introduction of an adjustment of nominal exchange rates within the euro zone may imply a positive competitiveness shock that may help some of the troubled countries. This is the idea of what may be called a multi- speed euro zone which could take two forms.