Based on the hypothesis that states that the underlying cause of the crisis in the euro area is a combination of exchange-rate misalignments with uncoordinated wage policies, we explore different exchange-rate arrangements that may help to reduce imbalances between surplus and deficit countries....

The crisis of the euro area has questioned the fairness, sustainability and viability of the current setting of the European Monetary Union (EMU). In this article we use a four-country stock–flow consistent (SFC) model in the tradition of Godley/Lavoie (2007a) to examine to what extent an...