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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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References

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  1. 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.
  2. Jordi Galí & Tommaso Monacelli, 2005. "Optimal monetary and fiscal policy in a currency union," Economics Working Papers 909, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2008.
  3. Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2012. "The Greek financial crisis: Growing imbalances and sovereign spreads," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 498-516.
  4. Gian Maria Milesi-Ferretti & Philip Lane, 2011. "External Adjustment and the Global Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp369, IIIS.
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  10. Carmen M. Reinhart & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," NBER Working Papers 16893, National Bureau of Economic Research, Inc.
  11. Lane, Philip R. & Pels, Barbara, 2012. "Current Account Imbalances in Europe," CEPR Discussion Papers 8958, C.E.P.R. Discussion Papers.
  12. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-78, May.
  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.
  14. 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.
  15. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall.
  16. Olivier Blanchard, 2007. "Current Account Deficits in Rich Countries," NBER Working Papers 12925, National Bureau of Economic Research, Inc.
  17. Agustín S. Bénétrix & Philip R. Lane, 2012. "Fiscal Cyclicality and EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp403, IIIS.
  18. Benedicta Marzinotto & André Sapir & Guntram B. Wolff, 2011. "What kind of fiscal union?," Policy Briefs 646, Bruegel.
  19. 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.
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