Fiscal Policy, Eurobonds and Economic Recovery: Some Heterodox Policy Recipes against Financial Instability and Sovereign Debt Crisis
In this paper, we propose a simple post-Keynesian model on the linkages between the financial and real side of an economy. We show how, according to the Minskyan instability hypothesis, financial variables, credit availability and asset prices in particular, may feedback each other and affect economic activity, possibly giving rise to intrinsically unstable economic processes. Through these destabilizing mechanisms, we also explain why governments intervention in the aftermath of the 2007 financial meltdown has been largely useless to restore financial tranquility and economic growth, but transformed a private debt crisis into a sovereign debt one. The paper ends up by looking at the long run and to the interaction between long-term growth potential and public debt sustainability. We explicitly consider the European economic context and the difficulties several EU members currently face to simultaneously support economic recovery and consolidate fiscal imbalances. We stress that: (i) financial turbulences may trigger permanent reductions in long-term growth potential and unsustainable public debt dynamics; (ii) strong institutional discontinuity such as EU financial assistance to member countries may prove to be the only way to restore growth and ensure long-run public debt sustainability.
|Date of creation:||Dec 2011|
|Contact details of provider:|| Postal: Via Ravasi 2-21100 Varese|
Web page: http://www.uninsubria.it/uninsubria/facolta/econo.html
More information through EDIRC
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.:
- Bank for International Settlements, 2009.
"An assessment of financial sector rescue programmes,"
Bank for International Settlements, number 48, april..
- Fabio Panetta & Thomas Faeh & Giuseppe Grande & Corrinne Ho & Michael King & Aviram Levy & Federico M. Signoretti & Marco Taboga & Andrea Zaghini, 2009. "An assessment of financial sector rescue programmes," Questioni di Economia e Finanza (Occasional Papers) 47, Bank of Italy, Economic Research and International Relations Area.
- Eckhard Hein & Achim Truger & Till van Treeck, 2011. "The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective," IMK Working Paper 9-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
- L. Randall Wray, 2008. "Lessons from the Subprime Meltdown," Challenge, M.E. Sharpe, Inc., vol. 51(2), pages 40-68, March.
- L. Randall Wray, 2007. "Lessons from the Subprime Meltdown," Economics Working Paper Archive wp_522, Levy Economics Institute.
- Giancarlo Bertocco, 2013. "On Keynes's Criticism of the Loanable Funds Theory," Review of Political Economy, Taylor & Francis Journals, vol. 25(2), pages 309-326, April.
- Giancarlo Bertocco, 2009. "On Keynes’s criticism of the Loanable Funds Theory," Economics and Quantitative Methods qf0904, Department of Economics, University of Insubria.
- Giuseppe Fontana & Mark Setterfield, 2009. "Macroeconomics, endogenous money and the contemporary financial crisis: a teaching model," International Journal of Pluralism and Economics Education, Inderscience Enterprises Ltd, vol. 1(1/2), pages 130-147.
- Miguel A. LeÛn-Ledesma & A. P. Thirlwall, 2002. "The endogeneity of the natural rate of growth," Cambridge Journal of Economics, Oxford University Press, vol. 26(4), pages 441-459, July.
- Miguel A. León-Ledesma & A. P. Thirlwall, 1998. "The Endogeneity of the Natural Rate of Growth," Studies in Economics 9821, School of Economics, University of Kent.
- Marc Lavoie, 2006. "A Post-Keynesian Amendment To The New Consensus On Monetary Policy," Metroeconomica, Wiley Blackwell, vol. 57(2), pages 165-192, 05.
- Jan Kregel, 2007. "The Natural Instability of Financial Markets," Economics Working Paper Archive wp_523, Levy Economics Institute.
- David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
- David Romer, 2000. "Keynesian Macroeconomics without the LM Curve," NBER Working Papers 7461, National Bureau of Economic Research, Inc.
- Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858, April.
- Bertocco Giancarlo, 2006. "Some observations about the endogenous money theory," Economics and Quantitative Methods qf0602, Department of Economics, University of Insubria. Full references (including those not matched with items on IDEAS)