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The Sovereign Debt Crisis in Europe, Save Banks Not States

  • Hans-Bernd Schäfer
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    The European central bank is a bank of banks but not a bank of states. This reduces the capabilities of member states to finance deficits. The role of the central bank to cope with the debt crises is institutionally more limited than in most other Western countries. The European Stability Mechanism has not enough financial power to bail out all distressed countries in the Eurozone. Eurobonds could increase lending capacities but would require a change of the European treaty, which is not in sight. They violate the no bail out clause of Art.125 of the Treaty on the Functioning of the European Union. The policy option is therefore debt restructuring of distressed countries and a bailout of financial institutions to avoid conflagration. This option would also shift some of the burden to creditors outside the Eurozone rather than to shift all risk on the people in solvent countries within the Eurozone.

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    Article provided by Cattaneo University (LIUC) in its journal The European Journal of Comparative Economics.

    Volume (Year): 9 (2012)
    Issue (Month): 2 (August)
    Pages: 179-195

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    Handle: RePEc:liu:liucej:v:9:y:2012:i:2:p:179-195
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    1. Sinn, Hans-Werner, 2006. "The pathological export boom and the bazaar effect: How to solve the German puzzle," Munich Reprints in Economics 19602, University of Munich, Department of Economics.
    2. Jakob de Haan & Helge Berger & David-Jan Jansen, 2004. "Why has the Stability and Growth Pact Failed?," International Finance, Wiley Blackwell, vol. 7(2), pages 235-260, 07.
    3. repec:ner:tilbur:urn:nbn:nl:ui:12-176184 is not listed on IDEAS
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