The Euro Imbalances and Financial Deregulation: A Post-Keynesian Interpretation of the European Debt Crisis
AbstractConventional wisdom suggests that the European debt crisis, which has thus far led to severe adjustment programs crafted by the European Union and the International Monetary Fund in both Greece and Ireland, was caused by fiscal profligacy on the part of peripheral, or noncore, countries in combination with a welfare state model, and that the role of the common currency-the euro-was at best minimal. This paper aims to show that, contrary to conventional wisdom, the crisis in Europe is the result of an imbalance between core and noncore countries that is inherent in the euro economic model. Underpinned by a process of monetary unification and financial deregulation, core eurozone countries pursued export-led growth policies-or, more specifically, "beggar thy neighbor" policies-at the expense of mounting disequilibria and debt accumulation in the periphery. This imbalance became unsustainable, and this unsustainability was a causal factor in the global financial crisis of 2007-08. The paper also maintains that the eurozone could avoid cumulative imbalances by adopting John Maynard Keynes's notion of the generalized banking principle (a fundamental principle of his clearing union proposal) as a central element of its monetary integration arrangement.
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 Levy Economics Institute in its series Economics Working Paper Archive with number wp_702.
Date of creation: Jan 2012
Date of revision:
Contact details of provider:
Web page: http://www.levyinstitute.org
European Union; Current Account Adjustment; Financial Aspects of Economic Integration;
Find related papers by JEL classification:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-18 (All new papers)
- NEP-EEC-2012-01-18 (European Economics)
- NEP-IFN-2012-01-18 (International Finance)
- NEP-OPM-2012-01-18 (Open Economy Macroeconomics)
- NEP-PKE-2012-01-18 (Post Keynesian 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.:
- Kenen,Peter B., 1995. "Economic and Monetary Union in Europe," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521558839.
- Sergio Cesaratto & Antonella Stirati, 2011.
"Germany and the European and Global Crises,"
Department of Economics University of Siena, Department of Economics, University of Siena
607, Department of Economics, University of Siena.
- Sergio Cesaratto & Antonella Stirati, 2010. "Germany and the European and Global Crises," International Journal of Political Economy, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 39(4), pages 56-86, January.
- Hubert Gabrisch & Karsten Staehr, 2012.
"The Euro Plus Pact: Competitiveness and external capital flows in the EU countries,"
Bank of Estonia Working Papers, Bank of Estonia
wp2012-5, Bank of Estonia, revised 10 Dec 2012.
- Hubert Gabrisch & Karsten Staehr, 2012. "The Euro Plus Pact: Competitiveness and External Capital Flows in the EU Countries," Working Papers, Institut fÃ¼r Ost- und SÃ¼dosteuropaforschung (Institute for East and South-East European Studies) 324, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
- 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,"
Economics Working Paper Archive, Levy Economics Institute
wp_740, Levy Economics Institute.
- 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 011, University of Pavia, Department of Economics and Management.
- Hubert Gabrisch & Karsten Staehr, 2014. "The Euro Plus Pact: Cost Competitiveness and External Capital Flows in the EU Countries," WWWforEurope Policy Paper series 15, WWWforEurope.
- 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.
- Gabrisch, Hubert & Staehr, Karsten, 2014. "The euro plus pact: cost competitiveness and external capital flows in the EU countries," Working Paper Series, European Central Bank 1650, European Central Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards).
If references are entirely missing, you can add them using this form.