How can a crisis-ridden monetary union be stabilized without members leaving it more or less voluntarily?
Robert A. Mundell, who won the Nobel memorial prize for economics in 2000, recognized more than 50 years ago that high labor mobility must exist in an efficiently functioning common-currency area. Especially when there is only minimal flexibility with the downward direction of prices and wages in the regions of this currency space.
This seems to be precisely the situation in the crisis countries of the euro zone ― with the exception of Ireland. Labor mobility allows regions with low growth and employment to “export” part of their labor force to regions that, because of stronger growth, show a correspondingly higher demand for workers.
In this way, high unemployment can be avoided in one part of the monetary union, while in another part the boost to employment puts a damper on the upward trend in prices.