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The economics of deflation in the euro area: a critique of fiscal austerity

Author

Listed:
  • Giuseppe Mastromatteo

    (Catholic University of Milan, Italy)

  • Sergio Rossi

    (University of Fribourg, Switzerland)

Abstract

This paper points out that the roots of the euro-area crisis are to be found in the loss of monetary sovereignty and an unsustainable credit-led economic growth in a variety of ‘peripheral’ countries. It addresses the negative consequences of fiscal austerity in the euro-area crisis framework, in particular regarding the distribution of income and the economic and financial relations between ‘core’ and ‘peripheral’ countries within the euro area. The paper also argues that the deflationary effects of the conventional policy reaction to the euro-area crisis will aggravate recession over the medium-to-long run in that area, owing to their negative impact on demand in the product markets across the whole European Union, whose competitiveness will suffer under the very measures that are supposed to enhance it in the global economy.

Suggested Citation

  • Giuseppe Mastromatteo & Sergio Rossi, 2015. "The economics of deflation in the euro area: a critique of fiscal austerity," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(3), pages 336-350, July.
  • Handle: RePEc:elg:rokejn:v:3:y:2015:i:3:p336-350
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    References listed on IDEAS

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    3. Alberto Bagnai, 2006. "Structural breaks and the twin deficits hypothesis," International Economics and Economic Policy, Springer, vol. 3(2), pages 137-155, November.
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    11. Aldo Barba & Giancarlo De Vivo, 2013. "Flawed Currency Areas and Viable Currency Areas: External Imbalances and Public Finance in the Time of the Euro," Contributions to Political Economy, Oxford University Press, vol. 32(1), pages 73-96.
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    Citations

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    Cited by:

    1. Philipp Heimberger & Jakob Kapeller, 2017. "The performativity of potential output: pro-cyclicality and path dependency in coordinating European fiscal policies," Review of International Political Economy, Taylor & Francis Journals, vol. 24(5), pages 904-928, September.
    2. repec:elg:rokejn:v:5:y:2017:i:3:p439-458 is not listed on IDEAS
    3. Philipp Heimberger, 2017. "Did fiscal consolidation cause the double-dip recession in the euro area?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(3), pages 439-458, July.
    4. Karl Michael Beyer & Lars Braeutigam, 2016. "Das europaeische Schattenbankensystem: Typologisierung und die Bewertung regulatorischer Initiativen auf europaeischer Ebene," ICAE Working Papers 56, Johannes Kepler University, Institute for Comprehensive Analysis of the Economy.
    5. Lars Bräutigam & Karl Michael Beyer, 2016. "Das europäische Schattenbankensystem," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 154, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.

    More about this item

    Keywords

    austerity; deflation; euro area;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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