This paper focuses on the effects of the euro on foreign accounts, economic development and welfare levels (measured by GDP per capita) in the euro area countries. Persistent competitiveness and productivity problems combined with large current account imbalances in the euro area have resulted in serious instability issues and a dramatic financial crisis as well as deep and long lasting depressions.
The main contribution of this paper is an upgraded analysis of the available evidence (main reports and AMECO and KLEMS databases) on the effects of the euro on trade, economic productivity, economic development and welfare. Blanchard’s benchmark model is a starting point for the analysis, but it is enriched by the explicit consideration of the main features of investment and capital accumulation, as well as the credit growth and private indebtedness. Finally, actual GDP losses associated with the 2008-2013 recession are computed in the euro area, their amounts are sufficiently high to considerably reduce the growth gains achieved in the period 2000-2008 in the weaker economies of the area.