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Policy Responses to the European Debt Crisis Treating the “Symptoms†or the “Disease†?

Listed author(s):
  • Angelos A. Antzoulatos


    (Department of Banking and Financial Management, University of Piraeus, Greece)

The conventional narrative for the European debt crisis stresses three factors, namely, bad policies and profligacy in the afflicted countries – 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 “safety valves†of market economies, at many levels of the society, both in the crisis countries and in the more “prudent†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 “symptoms†, not the “disease†. 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 – 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.

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Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

Volume (Year): 59 (2012)
Issue (Month): 5 (December)
Pages: 529-552

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Handle: RePEc:voj:journl:v:59:y:2012:i:5:p:529-552
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  1. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 635-654.
  2. Raghuram G. Rajan, 2010. "Fault Lines: How Hidden Fractures Still Threaten the World Economy," Economics Books, Princeton University Press, edition 1, number 9111.
  3. 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.
  4. 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.
  5. 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.
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