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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

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  • Alberto Botta

    ()
    (Department of Political and Social Sciences, University of Pavia and Department of Law and Economics, Mediterranean University of Reggio Calabria)

Abstract

In this paper we analyze the role of the nowadays Eurozone institutional setup in fostering the ongoing peripheral Euro countries’ sovereign debt crisis. According to the Modern Money Theory, we stress that the lack of a federal European government running anti-cyclical fiscal policy, the loss of monetary sovereignty by Euro Member States and the lack of a lender-of-last-resort central bank has significantly contributed to generate, amplify and protract the present crisis. In particular, we present a post- Keynesian Eurozone center-periphery model through which we show how, due to the incomplete nature of Eurozone institutions with respect to a full-fledged federal union, diverging trends and conflicting claims have emerged between center and peripheral Euro countries in the aftermath of the 2007-2008 financial meltdown. We emphasize two points. (i) Diverging trends and conflicting claims among Euro countries may represent a decisive obstacle to reform Eurozone towards a complete federal entity. However, they may prove to be self-defeating in the long run should financial turbulences seriously deepen also in large peripheral countries. (ii) Austerity packages alone do not address the core point of the Eurozone crisis. They could have sense only if included in a much wider reform agenda, whose final purpose is the creation of a federal European government which can run expansionary fiscal stances and of a government banker. In this sense, the unlimited bond-buying program recently launched by the European Central Banks is interpreted as a positive although mild step in the right direction out of the extreme monetarism which has so far shaped Eurozone institutions.

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File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0011.pdf
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Bibliographic Info

Paper provided by University of Pavia, Department of Economics and Management in its series DEM Working Papers Series with number 011.

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Length: 31 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:pav:demwpp:demwp0011

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Keywords: Eurozone debt crisis; Modern money theory; post-Keynesian center-periphery model;

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  1. Eckhard Hein & Achim Truger & Till van Treeck, 2011. "The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective," IMK Working Paper 9-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  2. Dimitri B. Papadimitriou & L. Randall Wray, 2012. "Euroland's Original Sin," Economics Policy Note Archive 12-08, Levy Economics Institute.
  3. Thomas I. Palley, 2011. "Monetary Union Stability: The Need for a Government Banker and the Case for a European Public Finance Authority," IMK Working Paper 2-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  4. Alan J. Auerbach, 2008. "Federal Budget Rules: The US Experience," NBER Working Papers 14288, National Bureau of Economic Research, Inc.
  5. Esteban Perez-Caldentey & Matias Vernengo, 2012. "The Euro Imbalances and Financial Deregulation: A Post-Keynesian Interpretation of the European Debt Crisis," Economics Working Paper Archive wp_702, Levy Economics Institute.
  6. Marc Lavoie, 2006. "A Post-Keynesian Amendment To The New Consensus On Monetary Policy," Metroeconomica, Wiley Blackwell, vol. 57(2), pages 165-192, 05.
  7. Jan Kregel, 2012. "Six Lessons from the Euro Crisis," Economics Policy Note Archive 12-10, Levy Economics Institute.
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Cited by:
  1. 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 180, Economics, The Univeristy of Manchester.

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