How Europe Can Muddle Through Its Crisis
AbstractEurope's financial market contagion is infecting systemically important eurozone members, causing a rise in demands that European policymakers make greater strides toward solutions. While Jacob Funk Kirkegaard believes that the European Union will do "whatever it takes" to save the euro and the eurozone, he argues that powerful political constraints prevent EU leaders from making optimal decisions. Europe can get through the current crisis by producing a compromise among member states in the form of a permanent European Stability Mechanism (ESM) with an option to issue a conditional Eurobond, which would aid eurozone members suffering asymmetric economic shocks in return for taking domestic reforms to return to a sustainable fiscal path. An ESM with a conditional Eurobond option offers a less clear-cut solution than a full fiscal union, a straightforward Eurobond, European Central Bank money-printing, or a breakup of the eurozone.
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Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Policy Briefs with number PB10-27.
Date of creation: Dec 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-19 (All new papers)
- NEP-CBA-2011-02-19 (Central Banking)
- NEP-CIS-2011-02-19 (Confederation of Independent States)
- NEP-EEC-2011-02-19 (European Economics)
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.:
- Jacob Funk Kirkegaard, 2010. "In Defense of Europe's Grand Bargain," Policy Briefs, Peterson Institute for International Economics PB10-14, Peterson Institute for International Economics.
- Shazia Ghani, 2011. "Is this all "Greek" in Europe ? Critical evaluation of the Euro zone policy response to debt crises," Post-Print, HAL halshs-00638723, HAL.
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