Monetary Integration, Soft Budget Constraints, and the EMU Sovereign Debt Crises
AbstractOne possible explanation for the European sovereign debt crises is that the European Economic and Monetary Union (EMU) gave rise to consolidation fatigue or even deliberate over-borrowing. This paper explores the validity of this explanation by studying how three decisive stages in the history of the EMU affected public borrowing in EU member states: the signing of the Maastricht treaty in 1992, the introduction of the Euro in 1999, and the suspension of the SGP in late 2003. The methodology relies on difference-in-difference regressions covering 26 OECD countries over the 1975-2009 period. The ﬁndings indicate that the ﬁrst two 'treatments' reduced deﬁcits especially in traditional high-deﬁcit countries. In contrast, the watering down of the original SGP encouraged borrowing in countries which traditionally have had high deﬁcits.
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Bibliographic InfoPaper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2013-03.
Length: 31 pages
Date of creation: 14 Mar 2013
Date of revision:
Find related papers by JEL classification:
- F15 - International Economics - - Trade - - - Economic Integration
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-CBA-2013-03-23 (Central Banking)
- NEP-EEC-2013-03-23 (European Economics)
- NEP-MON-2013-03-23 (Monetary Economics)
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