Is Belgium ready for EMU? A look at national, sectoral and regional developments

In EMU the question arises how countries will respond to adverse economic s hocks. A statistical decomposition of output shocks in Belgium identifies t he sectoral level as the main source of turbulence. This sectoral focus red uces the need for monetary, exchange rate and budgetary policies as macro-e conomic adjustment mechanisms but raises the issue of labour market flexibi lity. We show that wages fail to respond to sectoral and regional shocks. S imilarly to the other EU countries, this absence of wage adjustments tends to amplify the regional divergence in production and employment performance , and can thus threaten political cohesion.