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Monetary Union Stability: The Need for a Government Banker and the Case for a European Public Finance Authority

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Author Info

  • Thomas I. Palley

    ()
    (New America Foundation, Washington DC)

Abstract

This paper argues monetary union stability requires a government banker that manages the bond market and it offers a specific proposal for stabilizing the euro that does not violate the “no country bail-out” clause. There is accumulating evidence that the euro’s current architecture is unstable. The source of instability is high interest rates on highly indebted countries which creates unsustainable debt burdens. Remedying this problem requires a central bank that acts as government banker and pushes down government bond interest rates to sustainable levels. That can be accomplished by creation of a European Public Finance Authority (EPFA) that issues public debt which the European Central Bank (ECB) is allowed to trade. The debate over the euro’s financial architecture also has significant political implications. That is because the current neoliberal inspired architecture, which imposes a complete separation between the central bank and public finances, puts governments under continuous financial pressures. Over time, that pressure makes it difficult to maintain the European social democratic welfare state. This gives a political reason for reforming the euro and creating an EPFA that supplements the economic case for reform.

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Bibliographic Info

Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 2-2011.

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Length: 20 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:imk:wpaper:2-2011

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Keywords: monetary union; stability; government banker; euro.;

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Cited by:
  1. Catherine Mathieu & Henri Sterdyniak, 2013. "Redemption," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2013-06, Observatoire Francais des Conjonctures Economiques (OFCE).
  2. repec:spo:wpecon:info:hdl:2441/7gjmt2p0l896bo3oar8rqd4vvr is not listed on IDEAS
  3. Hein, Eckhard & Truger, Achim, 2013. "Future fiscal and debt policies: Germany in the Context of the European Monetary Union," IPE Working Papers, Berlin School of Economics and Law, Institute for International Political Economy (IPE) 24/2013, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  4. Botta, Alberto, 2012. "Conflicting Claims in Eurozone? Austerity’s Myopic Logic and the Need of a European federal union in a post-Keynesian Eurozone Center-Periphery Model," MPRA Paper 41700, University Library of Munich, Germany.
  5. Thomas I. Palley, 2013. "Europe´s crisis without end: The consequences of neoliberalism run amok," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 111-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  6. S. Devrim Yilmaz & Burak Saltoglu, 2013. "Why is it so Difficult and Complex to Solve the Euro Problem?," Centre for Growth and Business Cycle Research Discussion Paper Series, Economics, The Univeristy of Manchester 180, Economics, The Univeristy of Manchester.
  7. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p503i2pp3 is not listed on IDEAS
  8. Alberto Botta, 2012. "Conflicting Claims in the Eurozone? Austerity’s Myopic Logic and the Need for a European Federal Union in a post-Keynesian Eurozone Center-Periphery Model," DEM Working Papers Series, University of Pavia, Department of Economics and Management 011, University of Pavia, Department of Economics and Management.
  9. Eckhard Hein & Achim Truger, 2013. "Fiscal Policy and Rebalancing in the Euro Area: A Critique of the German Debt Brake from a Post-Keynesian Perspective," Economics Working Paper Archive, Levy Economics Institute wp_776, Levy Economics Institute.

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