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The Eurozone Crisis: Muddling through on the Way to a More Perfect Euro Union?

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  • Joshua Aizenman

    (Economics and International Relations, University of Southern California, VKC 330, Los Angeles, CA 90089, USA)

Abstract

Taking a historical perspective of economic changes, this paper argues that muddling through crises-induced reforms characterizes well the evolutionary process of forming currency unions. The economic distortions facing the euro include structural challenges in the labor and product markets, and financial distortions. While both structural and financial distortions are costly and prevalent, they differ in fundamental ways. Financial distortions are moving at the speed of the Internet, and their welfare costs are determined more by the access to credit lines and leverage, than by the GDP of each country. In contrast, the structural distortions are moving at a slow pace relative to the financial distortions, and their effects are determined by inter-generational dynamics. These considerations suggest that the priority should be given to dealing with the financial distortions. A more perfect Eurozone is not assured without successfully muddling through painful periodic crises.

Suggested Citation

  • Joshua Aizenman, 2013. "The Eurozone Crisis: Muddling through on the Way to a More Perfect Euro Union?," Social Sciences, MDPI, vol. 2(4), pages 1-13, October.
    • Handle: RePEc:gam:jscscx:v:2:y:2013:i:4:p:221-233:d:29682
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    References listed on IDEAS

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    Cited by:

    1. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2014. "Causality and contagion in EMU sovereign debt markets," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 12-27.
    2. Hamza Bennani, 2015. "Dissecting the brains of central bankers: The case of the ECB’s Governing Council members on reforms," International Economics, CEPII research center, issue 141, pages 97-114.
    3. Yuwen Dai, 2022. "Monetary Policy and Financial Sustainability in a Two-State Open Economy," Sustainability, MDPI, vol. 14(8), pages 1-12, April.

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