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External imbalances and financial fragility in the euro area

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Author Info

  • Pietro Alessandrini

    ()
    (Universit… Politecnica delle Marche, MoFiR)

  • Michele Fratianni

    ()
    (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche and MoFiR)

  • Andrew Hughes Hallett

    ()
    (George Mason University)

  • Andrea Filippo Presbitero

    ()
    (Universit… Politecnica delle Marche, MoFiR)

Abstract

This paper presents two views of the European sovereign debt crisis. The first is that the South in the euro zone has been fiscally irresponsible, and has failed to implement supply-side policies such as liberalizing labor markets and the market for services. The second view holds that the crisis reflects a deep divide between the external surpluses of the North and external deficits of the South. Basic stylized facts raise some doubt about the validity of the thesis that the debt crisis in the Eurozone is driven primarily by fiscal fragility in the South. A relatively simple model shows how poor fundamentals can create a debt problem independently of fiscal responsibility. The empirical analysis of the determinants of government bond yield spreads relative to Germany suggests that both views in fact provide useful insights into the roots of the current sovereign crisis. Fiscal fragility and external imbalances explain a significant share of the widening spreads since the onset of the global financial crisis. However, differences in labor productivity growth between North and South assume a much relevant role since the Greek crisis erupted in 2010.

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File URL: http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir066.pdf
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Bibliographic Info

Paper provided by Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences in its series Mo.Fi.R. Working Papers with number 66.

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Length: 46
Date of creation: May 2012
Date of revision:
Handle: RePEc:anc:wmofir:66

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Keywords: Sovereign yield spreads; adjustment burden; external imbalances; monetary union;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Europa: una crisi di debito o di bilancia dei pagamenti?
    by keynesblog in Keynes Blog on 2012-05-23 14:01:03
  2. Aby zwalczyć kryzys potrzeba innych narzędzi politycznych
    by k.mokrzycka in Obserwator Finansowy on 2012-05-29 04:01:21
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Michele Fratianni, 2012. "150 years of Italian political unity and economic dualism: An Introduction," Mo.Fi.R. Working Papers 73, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  2. Andrew Bosomworth, 2013. "The Eurozone Sovereign Debt Crisis – Status Quo, Challenges and Prerequisites for a Solution from an Asset Manager’s Perspective," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  3. Moritz Kraemer, 2013. "In the Debt Debate, our Sovereign Ratings have no Austerity Bias," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  4. Roberto Tamborini, 2014. "Interest-Rate Spread and Public-Debt Dynamics in a Two-Country Monetary-Union Portfolio Model," Open Economies Review, Springer, vol. 25(2), pages 243-261, April.
  5. Ugo Panizza, 2013. "The Politics of Debt and Debt Crises," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  6. Andrew Hughes Hallett, 2012. "Alberto Alesina: The Science of Using Political Economy Concepts to Explain the Macroeconomic Landscape," Atlantic Economic Journal, International Atlantic Economic Society, vol. 40(4), pages 351-365, December.
  7. Mario Sarcinelli, 2013. "L'unione bancaria europea e la stabilizzazione dell'Eurozona," Moneta e Credito, Economia civile, vol. 66(261), pages 7-42.
  8. András Simor, 2013. "The Interaction of Political, Fiscal and Financial Stability: Lessons from the Crisis," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  9. Elga Bartsch, 2013. "What is special about the Debt Crisis in the Euro Area?," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  10. Daniel Gros, 2013. "Foreign debt versus domestic debt in the euro area," Oxford Review of Economic Policy, Oxford University Press, vol. 29(3), pages 502-517, AUTUMN.
  11. Ewald Nowotny, 2013. "Opening Address," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  12. Michele Fratianni & John Pattison, 2014. "Basel III, Clubs and Eurozone Asymmetries," Mo.Fi.R. Working Papers 94, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  13. Ernest Gnan, 2013. "The Interaction of Political, Fiscal and Financial Stability: Lessons from the Crisis - An Introduction," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  14. Rosaria Rita canale & Ugo Marani, 2012. "Current account and fiscal imbalances in the Euro-area: Siamese twins in an asymmetrical currency union," Department of Economics University of Siena 659, Department of Economics, University of Siena.
  15. Linciano Nadia & Giordano Luca & Soccorso Paola, 2013. "Sovereign risk premia in the Euro Area and the role of contagion," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 1, pages 66-70, January.
  16. Iain Begg, 2013. "The Political Economy of Sovereign Debt Crises," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  17. Michele Fratianni & Antonio Maria Rinaldi & Paolo Savona, 2013. "Una proposta per ridurre il fardello del debito pubblico italiano," Mo.Fi.R. Working Papers 81, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  18. Ernest Gnan & Ewald Nowotny & András Simor & Iain Begg & Andrew Bosomworth & Ugo Panizza & Elga Bartsch & Moritz Kraemer, 2013. "The Interaction of Political, Fiscal and Financial Stability: Lessons from the Crisis," SUERF Studies, SUERF - The European Money and Finance Forum, number 2013/1 edited by Ernest Gnan.

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