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The European Union's new €750 billion recovery fund... But money cannot solve the problem of distorted relative goods prices within the eurozone.

In essence, this is a competitiveness crisis brought about by the distortion of relative prices within the eurozone, which is a result of inflationary overpricing in Southern European countries. 

This overpricing, in turn, stemmed from the flood of capital that entered these economies after they joined the euro.

And now COVID-19 has triggered another phase of capital flight that eclipses all the others.

Hans-Werner Sinn Project Syndicate 24 July 2020

Hans-Werner Sinn, Professor of Economics at the University of Munich, was President of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council. He is the author, most recently, of The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs.

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