The euro and saving-investment imbalances over 25 years: The importance of common currency and common markets

The 1992 Maastricht Treaty, laid the foundations for the current European Union with its single market in goods, services, capital and labour and established the framework for the creation of the single currency. We study countries that differ in the extent to which they share a common currency or common markets in labour, capital or goods through membership of the single market. These differences between countries allow us to judge the importance of membership of each of these institutions. We examine the impact of the euro on the labour, capital and goods markets and ask if membership of the euro is reflected in the parameters of some standard econometric relationships in particular the Feldstein-Horioka and purchasing power parity equations.