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Please do not shoot the wrong enemy!

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  • Spanò , Marcello

    ()
    (University of Insubria)

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    Abstract

    This work analyses external imbalances across Europe using data on sectorial gross value of assets over sixteen years (1995-2011) in founder countries of the European Union and in the whole Euro area. The empirical analysis strongly supports arguments against the thesis that in Europe sovereign debt is the problem and fiscal austerity the solution. On the contrary, it suggests that the current crisis originates from the growing disproportion of the financial sector compared to real sectors of the economy. This study divides the financial assets generated by the domestic financial companies and by the foreign sector into two aggregates: financial resources channelled to the real domestic sectors and ‘financial assets overhang’ held within the financial and foreign sector. The financial assets overhang, which boosted the relative size of the financial sector across the continent, should be considered as the main source of excess finance to be rigidly constrained.

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    File URL: http://siupt.uportu.pt/content/files/dcee/Investigacao/WP_31_2013.pdf
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    Bibliographic Info

    Paper provided by Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE) in its series Working Papers with number 31/2013.

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    Length: 29 pages
    Date of creation: 27 May 2013
    Date of revision:
    Handle: RePEc:ris:cigewp:2013_031

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    Postal: Universidade Portucalense – Economics and Management Department (CIGE – Centro de Investigação em Gestão e Economia), Rua Dr. António Bernardino de Almeida, 541-619, 4200 – 072 Porto, Portugal
    Web page: http://www.uportu.pt/site-scripts/centro_pagina.asp?codmenu=71&codcentro=24
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    Keywords: European union; euro area; sovereign debt; fiscal austerity;

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    References

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    1. Joshua Aizenman & Jaewoo Lee, 2005. "International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence," NBER Working Papers 11366, National Bureau of Economic Research, Inc.
    2. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 11-26, Fall.
    3. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521466004.
    4. James Crotty, 2009. "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 33(4), pages 563-580, July.
    5. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
    6. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521460477.
    7. Till van Treeck, 2008. "The political economy debate on ‘financialisation’ – a macroeconomic perspective," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 01-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    8. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
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