Export or Perish: Can Internal Devaluation Create Enough Good Jobs in Southern Europe?

Abstract

During the early 2010s, creditor states and EU institutions demanded that the Southern states of the eurozone liberalise their labour markets to facilitate internal devaluation and export-led recoveries. With some variation, the Greek, Portuguese, Spanish and Italian governments complied. This article explains why such a strategy of internal devaluation within the eurozone might fail to produce adequate employment growth to put these countries on stable financial footing. It exploits variation in the timing and intensity of reforms to evaluate the record of the internal devaluation strategy. Our findings suggest that there is no linear relationship between internal devaluation and export-growth. Even where the latter has been impressive, dualism persists and the employment recovery has been weak.

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