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Conflicting claims in the eurozone? Austerity's myopia and the need for a European Federal Union in a post-Keynesian eurozone center–periphery model

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  • Alberto Botta

    (Mediterranean University of Reggio Calabria)

Abstract

In this paper we study the role of the eurozone's institutional design in determining the sovereign debt crisis of the peripheral euro countries by means of a post-Keynesian eurozone center–periphery model. Within this framework, three points are formally addressed: (1) the incomplete nature of the eurozone with respect to a fully fledged federal union has significantly contributed to generating diverging trends and conflicting claims between central and peripheral eurozone countries in the aftermath of the 2007–2008 financial meltdown; (2) center–periphery diverging trends may disappear and a systemic crisis may occur should financial turbulences deepen in big peripheral economies, possibly spreading to the center; and (3) fiscal austerity does not address the core problems of the eurozone. The creation of a European federal government, capable of implementing anti-cyclical fiscal policies through a federal budget, and of a government banker constitutes the most promising solution to stabilize the macroeconomic picture of peripheral countries and to tackle the crisis. The unlimited bond-buying program recently launched by the ECB is a positive albeit mild step in the right direction away from the extreme monetarism that has shaped eurozone institutions thus far.

Suggested Citation

  • Alberto Botta, 2014. "Conflicting claims in the eurozone? Austerity's myopia and the need for a European Federal Union in a post-Keynesian eurozone center–periphery model," Review of Keynesian Economics, Edward Elgar Publishing, vol. 2(1), pages 45-70, January.
  • Handle: RePEc:elg:rokejn:v:2:y:2014:i:1:p45-70
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    References listed on IDEAS

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    1. Lance Taylor & Christian R. Proaño & Laura de Carvalho & Nelson Barbosa, 2012. "Fiscal deficits, economic growth and government debt in the USA," Cambridge Journal of Economics, Oxford University Press, vol. 36(1), pages 189-204.
    2. Alberto Botta, 2013. "Fiscal policy, Eurobonds, and economic recovery: heterodox policy recipes against financial instability and sovereign debt crisis," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(3), pages 417-442.
    3. 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.
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    Cited by:

    1. Alberto Botta, 2014. "Structural Asymmetries at the Roots of the Eurozone Crisis: What’s New for Industrial Policy in the EU?," Economics Working Paper Archive wp_794, Levy Economics Institute.
    2. Alberto Botta, 2014. "Structural asymmetries at the roots of the eurozone crisis: what's new for industrial policy in the EU?," PSL Quarterly Review, Economia civile, vol. 67(269), pages 169-216.

    More about this item

    Keywords

    eurozone debt crisis; post-Keynesian center–periphery model;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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