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.
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 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)
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.:
- Russell Cooper & Hubert Kempf & Dan Peled, 2005.
"Is It Is or Is It Ain't My Obligation? Regional Debt in a Fiscal Federation,"
NBER Working Papers
11655, National Bureau of Economic Research, Inc.
- Russell Cooper & Hubert Kempf & Dan Peled, 2008. "Is It Is Or Is It Ain'T My Obligation? Regional Debt In A Fiscal Federation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1469-1504, November.
- Russell Cooper & Hubert Kempf & Dan Peled, 2005. "Is it is or is it ain't my obligation? Regional debt in a fiscal federation," Working Papers 0507, Federal Reserve Bank of Dallas.
- Jordi GalÌ & Roberto Perotti, 2003.
"Fiscal policy and monetary integration in Europe,"
CEPR & CES & MSH, vol. 18(37), pages 533-572, October.
- Galí, Jordi & Perotti, Roberto, 2003. "Fiscal Policy and Monetary Integration in Europe," CEPR Discussion Papers 3933, C.E.P.R. Discussion Papers.
- Jordi Gali & Roberto Perotti, 2003. "Fiscal Policy and Monetary Integration in Europe," NBER Working Papers 9773, National Bureau of Economic Research, Inc.
- Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
- Per Pettersson-Lidbom, 2010. "Dynamic Commitment and the Soft Budget Constraint: An Empirical Test," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 154-79, August.
- Timothy Goodspeed, 2002. "Bailouts in a Federation," International Tax and Public Finance, Springer, vol. 9(4), pages 409-421, August.
- A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2007.
"Bootstrap-Based Improvements for Inference with Clustered Errors,"
NBER Technical Working Papers
0344, National Bureau of Economic Research, Inc.
- A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2008. "Bootstrap-Based Improvements for Inference with Clustered Errors," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 414-427, August.
- Doug Miller & A. Colin Cameron & Jonah B. Gelbach, 2006. "Bootstrap-Based Improvements for Inference with Clustered Errors," Working Papers 621, University of California, Davis, Department of Economics.
- Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Wiley Blackwell, vol. 39(1), pages 3-30.
- Lee, Jong-Wha & Shin, Kwanho, 2008.
"IMF bailouts and moral hazard,"
Journal of International Money and Finance,
Elsevier, vol. 27(5), pages 816-830, September.
- Baskaran, Thushyanthan, 2011.
"Soft budget constraints and strategic interactions in subnational borrowing: Evidence from the German States, 1975-2005,"
32537, University Library of Munich, Germany.
- Baskaran, Thushyanthan, 2012. "Soft budget constraints and strategic interactions in subnational borrowing: Evidence from the German States, 1975–2005," Journal of Urban Economics, Elsevier, vol. 71(1), pages 114-127.
- Schuknecht, Ludger & Moutot, Philippe & Rother, Philipp & Stark , Jürgen, 2011.
"The Stability and Growth Pact - crisis and reform,"
Occasional Paper Series
129, European Central Bank.
- Charles Wyplosz, 2006. "European Monetary Union: the dark sides of a major success," Economic Policy, CEPR & CES & MSH, vol. 21(46), pages 207-261, 04.
- Dell'Ariccia, Giovanni & Schnabel, Isabel & Zettelmeyer, Jeromin, 2006. "How Do Official Bailouts Affect the Risk of Investing in Emerging Markets?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1689-1714, October.
- Baskaran, Thushyanthan, 2009. "Did the Maastricht treaty matter for macroeconomic performance?," MPRA Paper 30106, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gundula Hadjiani).
If references are entirely missing, you can add them using this form.