What have been the consequences of these effects on economic growth performance? Prior to EMU, diverging inflation and competitiveness developments and sizeable current account deficits would have heralded, sooner or later, external adjustment via the exchange rate. Within a monetary union, this adjustment channel does not exist any longer.
The effects on GDP growth of losses in competitiveness as measured by the cumulative relative UCL growth are not visible in all countries (see slide 15). Why have we not witnessed, so far, expected adverse effects on output growth and employment in all countries that have experienced strong ULC growth? There are several reasons.