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Stagflation and fragmentation: The euro area at the crossroad

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  • Benigno Pierpaolo
  • Canofari Paolo
  • Di Bartolomeo Giovanni
  • Messori Marcello

Abstract

The euro area may be about to experience something new: fragmentations in its financial markets in a situation characterized by a high inflation rate. We argue that the euro area has only two options in such a scenario. First, countries facing tight financing conditions could apply for European aid procedures at the European Stability Mechanism to activate the Outright Monetary Transactions program. Second, these countries could find protection in strengthening a central fiscal capacity and in compliance with new country-specific central fiscal rules. Selecting one of these alternative options would lead to designing a very different architecture for the European Union.

Suggested Citation

  • Benigno Pierpaolo & Canofari Paolo & Di Bartolomeo Giovanni & Messori Marcello, 2022. "Stagflation and fragmentation: The euro area at the crossroad," wp.comunite 00157, Department of Communication, University of Teramo.
    • Handle: RePEc:ter:wpaper:00157
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