Policy Responses to the European Debt Crisis Treating the â€œSymptomsâ€ or the â€œDiseaseâ€?
AbstractThe conventional narrative for the European debt crisis stresses three factors, namely, bad policies and profligacy in the afflicted countries â€“ mostly southern ones, flaws in the EMU design, and wise policies in the northern frugal countries. This paper argues that the root causes of the crisis lie in the failure of many â€œsafety valvesâ€ of market economies, at many levels of the society, both in the crisis countries and in the more â€œprudentâ€ EMU countries, in an economic environment where unfettered finance can overwhelm even the biggest and best managed economies. Hence, the policy responses based on the conventional narrative are akin to treating the â€œsymptomsâ€, not the â€œdiseaseâ€. As such, they may be setting the foundations for a bigger crisis in the future by strengthening the always-present perverse incentives of many economic players and by proposing complex and unworkable regulatory and supervisory structures. This, together with the unequal sharing of the burden of adjustment â€“ both across and within countries, bodes ill for the long-term prospects of EMU, despite that the aforementioned failures are not intrinsically related to the euro.
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Bibliographic InfoArticle provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.
Volume (Year): 59 (2012)
Issue (Month): 5 (December)
Contact details of provider:
Web page: http://www.panoeconomicus.rs/
Bank supervision; Economic and financial imbalances; EMU; European debt crisis; Financial regulation; Market discipline;
Find related papers by JEL classification:
- E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
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