Governance of a Fragile Eurozone
AbstractWhen entering a monetary union, member countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries’ sovereigns into default. In this sense, the status of member countries of a monetary union is downgraded to that of an emerging economy. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise. This paper analyses the implications of this fragility for the governance of the eurozone. It concludes that the new governance structure (ESM) does not sufficiently recognize this fragility. Some of the features of the new financial assistance in fact are likely to increase this fragility. In addition, it is also likely to prevent member countries from using the automatic stabilizers during a recession. This is surely a step backward in the long history of social progress in Europe. The author suggests a different approach to deal with these problems.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for European Policy Studies in its series CEPS Papers with number 5523.
Length: 28 pages
Date of creation: May 2011
Date of revision:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rabah Arezki & Bertrand Candelon & Amadou Sy, 2011.
"Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis,"
CESifo Working Paper Series
3411, CESifo Group Munich.
- Bertrand Candelon & Amadou N. R. Sy & Rabah Arezki, 2011. "Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis," IMF Working Papers 11/68, International Monetary Fund.
- Pierre-Olivier Gourinchas & Hélène Rey, 2005.
"From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege,"
NBER Working Papers
11563, National Bureau of Economic Research, Inc.
- Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: U.S. External Adjustment and the Exorbitant Privilege," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66 National Bureau of Economic Research, Inc.
- Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and The Exorbitant Privilege," CEPR Discussion Papers 5220, C.E.P.R. Discussion Papers.
- Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," CEPREMAP Working Papers (Docweb) 0606, CEPREMAP.
- repec:ner:leuven:urn:hdl:123456789/288263 is not listed on IDEAS
- Peirce, Fabrizia & Micossi, Stefano & Carmassi, Jacopo, 2011. "On the Tasks of the European Stability Mechanism," CEPS Papers 4262, Centre for European Policy Studies.
- Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
- Jakob von WeizsÃ¤cker & Jacques Delpla, 2010. "The Blue Bond Proposal," Policy Briefs 403, Bruegel.
- Mayer, Thomas & Gros, Daniel, 2011. "Debt reduction without default?," CEPS Papers 4150, Centre for European Policy Studies.
- Kopf, Christian, 2011. "Restoring financial stability in the euro area," CEPS Papers 4292, Centre for European Policy Studies.
- Alasdair Scott & Pau Rabanal & Prakash Kannan, 2009. "Macroeconomic Patterns and Monetary Policy in the Run-up to Asset Price Busts," IMF Working Papers 09/252, International Monetary Fund.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Margarita Minkova).
If references are entirely missing, you can add them using this form.