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The euro crisis: Where to from here?

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  • Frankel, Jeffrey

Abstract

Germans cannot agree to unlimited bailouts of euro members. On the other hand, if they had insisted on the founding principles (fiscal constraints, "no bailout clause," and low inflation as the sole goal of the ECB), the euro would not have survived the post-2009 crisis. The impact of fiscal austerity has been to raise debt/GDP ratios among periphery countries, not lower them. The eurozone will endure, but through a lost decade of growth. It would help if the ECB further eased monetary policy, which it could do by buying US treasury bonds rather than eurozone bonds. Still needed is a long-run fiscal regime to address the moral hazard problem. Two worthwhile proposals are blue bonds and the delegation of forecasting to independent fiscal agencies.
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Suggested Citation

  • Frankel, Jeffrey, 2015. "The euro crisis: Where to from here?," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 428-444.
  • Handle: RePEc:eee:jpolmo:v:37:y:2015:i:3:p:428-444
    DOI: 10.1016/j.jpolmod.2015.03.006
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    Cited by:

    1. D’Aguanno, Lucio, 2015. "Monetary Policy and Welfare in a Currency Union," The Warwick Economics Research Paper Series (TWERPS) 1082, University of Warwick, Department of Economics.
    2. Ritzen, Jo & Haas, Jasmina, 2016. "A Sustainable Euro Area with Exit Options," IZA Policy Papers 120, Institute for the Study of Labor (IZA).
    3. De Socio, Antonio & Michelangeli, Valentina, 2017. "A model to assess the financial vulnerability of Italian firms," Journal of Policy Modeling, Elsevier, vol. 39(1), pages 147-168.
    4. Harris Dellas & George S. Tavlas, 2017. "Milton Friedman and the case for flexible exchange rates and monetary rules," Working Papers 236, Bank of Greece.
    5. Orlowski, Lucjan T., 2016. "Co-movements of non-Euro EU currencies with the Euro," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 376-383.

    More about this item

    Keywords

    Crisis; Euro; Blue bonds; Fiscal; Monetary; Greece;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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