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The Euro Area sovereign debt crisis: Some implications of its systemic dimension

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  • Pessoa, Argentino

Abstract

After the beginning of the euro area, countries in its periphery engaged in weighty borrowing from foreign private investors, allowing domestic spending to outpace incomes. Now, these countries face debt crises reflecting a loss of creditor confidence in the sustainability of their finances from which results an abrupt end in private foreign lending to these economies. The debt crisis made evident the asymmetry between core and periphery countries, which is visible in trends in saving, consumption and investment. These divergent patterns have contributed to view the debt crisis as a problem of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) that can be contained in the periphery, or as a new version of the fable of the Grasshopper and the Ant. We dispute this reductionism showing that the debt crisis is systemic and its solution cannot be found with more fiscal rules and austerity in peripheral countries alone. It will imply, if not an increase in fiscal and political integration, at least a higher coordination at the political and economic front and a new governance structure.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35328.

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Date of creation: 10 Dec 2011
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Handle: RePEc:pra:mprapa:35328

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Keywords: Debt crisis; Euro Area; EFSF; ESM; Fiscal rules; PIIGS; Systemic crisis; Solvency;

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Cited by:
  1. Argentino Pessoa, 2013. "Structural and technological change in the European periphery: The case of Portugal," CEF.UP Working Papers 1301, Universidade do Porto, Faculdade de Economia do Porto.

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