IDEAS home Printed from https://ideas.repec.org/a/sgh/gosnar/y2012i10p1-22.html
   My bibliography  Save this article

Preserving EMU Depends on Success of ESM in Solving the Debt Crisis

Author

Listed:
  • Janusz Sawicki

Abstract

The paper presents a systemic explanation of the ongoing debt crisis in the European Monetary Union (EMU). The way monetary policy has been conducted in the eurozone as well as ineffective management of both public and private debt created a systemic risk that in 2010 turned into a full-fledged debt crisis. The author’s analysis of past EMU data, official internal and external forecasts and the way that debt negotiations have proceeded yield a number of conclusions. One of these is that the European Stability Mechanism (ESM) and the European Central Bank (ECB) are in a position to stabilize the debt situation for some time if they are flexible in their approach. However, this requires extensive cooperation between peripheral and central countries as well as within these groups. This condition is necessary but not sufficient to stabilize the EMU, the author says. As most of the EMU countries are heavily indebted (a situation that applies to both the public and private sectors), a new system of financial regulations must be hammered out, along with instruments to allow the peripheral countries to grow out of their debt problems. That will not happen without a partial debt reduction and external assistance, the author says, as the heavily indebted economies will not be able to adjust, because of economic as well as political factors. As in all past debt negotiations, conditionality, comparability of treatment and moral hazard problems will play a role, the author concludes.

Suggested Citation

  • Janusz Sawicki, 2012. "Preserving EMU Depends on Success of ESM in Solving the Debt Crisis," Gospodarka Narodowa, Warsaw School of Economics, issue 10, pages 1-22.
  • Handle: RePEc:sgh:gosnar:y:2012:i:10:p:1-22
    as

    Download full text from publisher

    File URL: http://www.journalssystem.com/gna/pdf-100993-32773
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Nigel A Chalk & Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 00/81, International Monetary Fund.
    2. Dimitrios Bisias & Mark Flood & Andrew W. Lo & Stavros Valavanis, 2012. "A Survey of Systemic Risk Analytics," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 255-296, October.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    4. Robert J. Shiller, 2012. "Finance and the Good Society," Economics Books, Princeton University Press, edition 1, number 9652, December.
    5. Jorg Bibow, 2012. "The Euro Debt Crisis and Germany's Euro Trilemma," Economics Working Paper Archive wp_721, Levy Economics Institute.
    6. Martin Feldstein, 1991. "Introduction to "The Risk of Economic Crisis"," NBER Chapters,in: The Risk of Economic Crisis, pages 1-18 National Bureau of Economic Research, Inc.
    7. Martin Feldstein, 1991. "Reducing the Risk of Economic Crisis," NBER Working Papers 3620, National Bureau of Economic Research, Inc.
    8. Alberto Bagnai, 2010. "CEEC vs. PIGS: a comparative panel assessment of financial sustainability and twin deficits," Working Papers LuissLab 1088, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    9. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute.
    10. Martin Feldstein, 1991. "The Risk of Economic Crisis," NBER Books, National Bureau of Economic Research, Inc, number feld91-2, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    debt; debt management; financial sustainability; EMU; ESM;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sgh:gosnar:y:2012:i:10:p:1-22. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dariusz Nojszewski). General contact details of provider: http://edirc.repec.org/data/sgwawpl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.