Economics, 3rd Edition

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FIGURE 36.4

In fact, researchers have found that many of the shocks that impact upon European countries asym-

metrically tend to be specific to a region or to an industry rather than to a country as a whole. This is 

not a problem made worse by joining a monetary union, however, since a country that experienced, 

say, a negative shock to one of its industries or regions would not in any case be able to deal with 

this using monetary or exchange rate policy without generating imbalances in its other regions or 

industries. The idea of a two-speed EU with the countries that have experienced debt crisis problems 

since the financial crisis, Portugal, Ireland, Italy, Greece and Spain (the so called ‘PIIGS’ countries) has 

highlighted that there are some countries that seem better able to weather economic storms than 

others. Germany, France, the Netherlands, Denmark and Sweden have all recovered from the finan-

cial crisis more quickly than have the PIIGS, albeit that the strength of the recovery has been muted. 

Economists have noted that the degree of integration of the euro area and the EU as a whole does 

impact on the ability of countries to recover from economic shocks. If EU countries rely on each other 

for export-led growth, then if a group of these countries face  considerable fiscal difficulties and have 

to implement austerity measures, then the level of demand in these  economies falls and this affects 

demand in the other economies, thus dragging down growth in all the euro area countries and the 

EU as a whole.