If the resultant liquidity is sterilized, it puts upward pressure on interest rates which not only hurts competitiveness, but also, in a curious variation of the Dutch disease, encourages further flows. Capital inflows far in excess of a country’s absorptive capacity could pose problems other than currency appreciation.
Participating countries will not support euro area growth by competing for their neighbours’ market shares. Conclusion There is nothing inevitable about the status quo, but, to go beyond it, we need to rediscover the spirit of Robert Schuman.