Policy Responses to the European Debt Crisis Treating the â€œSymptomsâ€ or the â€œDiseaseâ€?
The conventional narrative for the European debt crisis stresses three factors, namely, bad policies and profligacy in the afflicted countries â€“ mostly southern ones, flaws in the EMU design, and wise policies in the northern frugal countries. This paper argues that the root causes of the crisis lie in the failure of many â€œsafety valvesâ€ of market economies, at many levels of the society, both in the crisis countries and in the more â€œprudentâ€ EMU countries, in an economic environment where unfettered finance can overwhelm even the biggest and best managed economies. Hence, the policy responses based on the conventional narrative are akin to treating the â€œsymptomsâ€, not the â€œdiseaseâ€. As such, they may be setting the foundations for a bigger crisis in the future by strengthening the always-present perverse incentives of many economic players and by proposing complex and unworkable regulatory and supervisory structures. This, together with the unequal sharing of the burden of adjustment â€“ both across and within countries, bodes ill for the long-term prospects of EMU, despite that the aforementioned failures are not intrinsically related to the euro.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lin, Justin Yifu & Treichel, Volker, 2012. "The crisis in the Euro zone : did the euro contribute to the evolution of the crisis ?," Policy Research Working Paper Series 6127, The World Bank.
- Antzoulatos, Angelos A., 2002.
"Arbitrage opportunities on the road to stabilization and reform,"
Journal of International Money and Finance,
Elsevier, vol. 21(7), pages 1013-1034, December.
- Angelos A. Antzoulatos, 1998. "Arbitrage Opportunities on the Road to Stabilization and Reform," Working Papers 98-14, New York University, Leonard N. Stern School of Business, Department of Economics.
- Richard Baldwin & Paul R. Krugman, 1986.
"Persistent Trade Effects of Large Exchage Rate Shocks,"
NBER Working Papers
2017, National Bureau of Economic Research, Inc.
- Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 635-54, November.
- Georgios P. Kouretas & Prodromos Vlamis, 2010. "The Greek Crisis: Causes and Implications," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(4), pages 391-404, December.
When requesting a correction, please mention this item's handle: RePEc:voj:journl:v:59:y:2012:i:5:p:529-552. 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: (Ivana Horvat)The email address of this maintainer does not seem to be valid anymore. Please ask Ivana Horvat to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.