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The European Sovereign Debt Crisis

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  • Philip R. Lane

Abstract

The origin and propagation of the European sovereign debt crisis can be attributed to the flawed original design of the euro. In particular, there was an incomplete understanding of the fragility of a monetary union under crisis conditions, especially in the absence of banking union and other European-level buffer mechanisms. Moreover, the inherent messiness involved in proposing and implementing incremental multicountry crisis management responses on the fly has been an important destabilizing factor throughout the crisis. After diagnosing the situation, we consider reforms that might improve the resilience of the euro area to future fiscal shocks.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.26.3.49
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File URL: http://www.aeaweb.org/jep/app/2603_Lane_app.pdf
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 26 (2012)
Issue (Month): 3 (Summer)
Pages: 49-68

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Handle: RePEc:aea:jecper:v:26:y:2012:i:3:p:49-68

Note: DOI: 10.1257/jep.26.3.49
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  1. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
  2. Tommaso Monacelli & Jordi Galí, 2005. "Optimal Monetary and Fiscal Policy in a Currency Union," Working Papers 300, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Martin Feldstein, 1998. "The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability," NBER Working Papers 6150, National Bureau of Economic Research, Inc.
  4. Olivier Blanchard, 2007. "Current Account Deficits in Rich Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 54(2), pages 127-158, June.
  5. Gian-Maria Milesi-Ferretti & Philip R. Lane, 2011. "External Adjustment and the Global Crisis," IMF Working Papers 11/197, International Monetary Fund.
  6. Ashoka Mody & Damiano Sandri, 2012. "The eurozone crisis: how banks and sovereigns came to be joined at the hip," Economic Policy, CEPR & CES & MSH, vol. 27(70), pages 199-230, 04.
  7. C. Randall Henning & Martin Kessler, 2012. "Fiscal Federalism: US History for Architects of Europe's Fiscal Union," Working Paper Series WP12-1, Peterson Institute for International Economics.
  8. Heather D. Gibson & Stephan G. Hall & George S. Tavlas, 2011. "The Greek financial crisis: growing imbalances and sovereign spreads," Discussion Papers in Economics 11/25, Department of Economics, University of Leicester.
  9. Benedicta Marzinotto & André Sapir & Guntram B. Wolff, 2011. "What kind of fiscal union?," Policy Briefs 646, Bruegel.
  10. Charles Wyplosz, 2006. "European Monetary Union: the dark sides of a major success," Economic Policy, CEPR & CES & MSH, vol. 21(46), pages 207-261, 04.
  11. Paul De Grauwe, 2012. "A Fragile Eurozone in Search of a Better Governance," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 1–30.
  12. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall.
  13. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, March.
  14. Philip R. Lane, 2006. "The Real Effects of European Monetary Union," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 47-66, Fall.
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Citations

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Cited by:
  1. Alexander Michaelides, 2012. "Banking Crisis in Cyprus and in the Eurozone," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 6(2), pages 41-47, December.
  2. Claessens, Stijn & Kose, Ayhan, 2013. "Financial Crises: Explanations, Types, and Implications," CEPR Discussion Papers 9329, C.E.P.R. Discussion Papers.
  3. Phillip Anthony O’Hara, 2013. "Policies and Institutions for Moderating Deep Recessions, Debt Crises and Financial Instabilities," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 19-49, March.
  4. Brigitte Granville, 2013. "The Current Eurozone – an impediment to critical French reform," Working Papers 42, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  5. S. Devrim Yilmaz & Burak Saltoglu, 2013. "Why is it so Difficult and Complex to Solve the Euro Problem?," Centre for Growth and Business Cycle Research Discussion Paper Series 180, Economics, The Univeristy of Manchester.
  6. Adrian Van Rixtel & Gabriele Gasperini, 2013. "Financial crises and bank funding: recent experience in the euro area," BIS Working Papers 406, Bank for International Settlements.
  7. Philip R. Lane, 2012. "Financial Globalisation and the Crisis," BIS Working Papers 397, Bank for International Settlements.
  8. Burak Saltoðlu & Devrim Yýlmaz, 2013. "Why is it so Difficult and Complex to Solve the Euro Problem?," Working Papers 2013/02, Bogazici University, Department of Economics.

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