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Fiscal policy, Eurobonds, and economic recovery: heterodox policy recipes against financial instability and sovereign debt crisis

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  • Alberto Botta

Abstract

This paper proposes a simple post-Keynesian model on the linkages between the financial and real side of an economy. It shows how financial variables may interact with each other and affect economic activity, possibly giving rise to intrinsically unstable economic processes. These destabilizing mechanisms explain why governments' intervention in the aftermath of the 2007 financial meltdown has been largely useless to restore financial tranquility, and has transformed a private debt crisis into a sovereign debt one. The paper concludes by looking at the long run and the interaction between long-term growth potential and public debt sustainability. The European economic context and the macroeconomic difficulties currently faced by several European Union (EU) members are discussed. The paper emphasizes that: (1) financial turbulence may trigger permanent reductions in long-term growth potential and unsustainable public debt dynamics; and (2) strong institutional discontinuity such as EU financial assistance to member countries is probably the only way to restore growth and ensure long-run public debt sustainability.

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  • 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.
    • Handle: RePEc:mes:postke:v:35:y:2013:i:3:p:417-442
    DOI: 10.2753/PKE0160-3477350305
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    Cited by:

    1. Botta, Alberto, 2012. "Conflicting Claims in Eurozone? Austerity’s Myopic Logic and the Need of a European federal union in a post-Keynesian Eurozone Center-Periphery Model," MPRA Paper 41700, University Library of Munich, Germany.
    2. Marcello Spano', 2012. "A survey of the theoretical models of corporate hedging," Economics and Quantitative Methods qf1204, Department of Economics, University of Insubria.
    3. 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.
    4. Alberto Botta, 2020. "The short- and long-run inconsistency of the expansionary austerity theory: a post-Keynesian/evolutionist critique," Journal of Evolutionary Economics, Springer, vol. 30(1), pages 143-177, January.
    5. Dariusz Malinowski, 2017. "Barriers to expansive fiscal policy against the background of the macroeconomic situation of the euro area," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 16(1), pages 87-105, March.
    6. Zacharias Bragoudakis & Evangelia Kasimati & Christos Pierros & Nikolaos Rodousakis & George Soklis, 2022. "Measuring Productivities for the 38 OECD Member Countries: An Input-Output Modelling Approach," Mathematics, MDPI, vol. 10(13), pages 1-21, July.
    7. 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.

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