Single currency and supranational constraints to fiscal policies in the Eurozone during the crisis

This paper reviews the current debate on the causes and remedies of the recent European sovereign debt crisis. The survey starts from the observation that different views seem to share the following point: the non-optimality of the Eurozone. The European Institutions have identified two main causes of the crisis: high public debts in the peripheral countries of the Union and their delay in implementing structural reforms. As a consequence, the cost of the adjustment has been exclusively supported by GIPSI countries. However, the recessionary effects produced by austerity policies have been far more intense and long-lasting than predicted. After the failure of fiscal austerity, the heterodox vision has gained credibility: real imbalances between the core and the periphery of the Union are responsible for the current crisis. Ultimately, the main lesson of the crisis is that, given the systematic asymmetries across Member States, the Eurozone will be unable to gain sustainability unless a process of fiscal union will start.