European debt crisis and competitiveness of PIIGS

This diploma thesis deals with the issue of competitiveness gap among so-called PIIGS (Ireland, Italy, Portugal, Greece and Spain) and European Economic and Monetary Union core member states. The thesis defines competitiveness in the context of European integration and focuses on its link to the topic of Macroeconomic imbalances. Thesis uses indicators of external imbalances and competitiveness (current account balance, net international investment position, real effective exchange rate, nominal unit labour costs and export market share) to describe the emergence of competitiveness gap before global financial crisis. Problems arising for monetary union with the emergence of competitiveness gap and the link of competitiveness gap to European debt crisis are described. The core part of the thesis is dedicated to analysis of changes in competitiveness of PIIGS after the outbreak of economic crisis and to identification of different measures and mechanisms which led to these changes. Diploma thesis concludes that macroeconomic balance of PIIGS was restored through amelioration of price competitiveness. Nonetheless, the price for the improvement was GDP drop in all discussed countries except Ireland. Also, aggregate competitiveness of PIIGS was not significantly increased.