Conflicting Claims in the Eurozone? Austerity's Myopic Logic and the Need for a European Federal Union in a Post-Keynesian Eurozone Center-Periphery Model
In this paper, we analyze the role of the current institutional setup of the eurozone in fostering the ongoing peripheral euro countries' sovereign debt crisis. In line with Modern Money Theory, we stress that the lack of a federal European government running anticyclical fiscal policy, the loss of euro member-states' monetary sovereignty, and the lack of a lender-of-last-resort central bank have significantly contributed to the generation, amplification, and protraction of the present crisis. In particular, we present a Post-Keynesian eurozone center-periphery model through which we show how, due to the incomplete nature of eurozone institutions with respect to a full-fledged federal union, diverging trends and conflicting claims have emerged between central and peripheral euro countries in the aftermath of the 2007-08 financial meltdown. We emphasize two points. (1) Diverging trends and conflicting claims among euro countries may represent decisive obstacles to the reform of the eurozone toward a complete federal entity. However, they may prove to be self-defeating in the long run should financial turbulences seriously deepen in large peripheral countries. (2) Austerity packages alone do not address the core problems of the eurozone. These packages would make sense only if they were included in a much wider reform agenda whose final purpose was the creation of a government banker and a federal European government that could run expansionary fiscal stances. In this sense, the unlimited bond-buying program recently launched by the European Central Bank is interpreted as a positive, albeit mild step in the right direction out of the extreme monetarism that has thus far shaped eurozone institutions.
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.:
- Thomas I. Palley, 2011. "Monetary Union Stability: The Need for a Government Banker and the Case for a European Public Finance Authority," IMK Working Paper 2-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
- Alan J. Auerbach, 2008. "Federal Budget Rules: The US Experience," NBER Working Papers 14288, National Bureau of Economic Research, Inc.
- Esteban Perez-Caldentey & Matias Vernengo, 2012. "The Euro Imbalances and Financial Deregulation: A Post-Keynesian Interpretation of the European Debt Crisis," Economics Working Paper Archive wp_702, Levy Economics Institute.
- 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.
- Jan Kregel, 2012. "Six Lessons from the Euro Crisis," Economics Policy Note Archive 12-10, Levy Economics Institute.
- Marc Lavoie, 2006. "A Post-Keynesian Amendment To The New Consensus On Monetary Policy," Metroeconomica, Wiley Blackwell, vol. 57(2), pages 165-192, 05.
- Dimitri B. Papadimitriou & L. Randall Wray, 2012. "Euroland's Original Sin," Economics Policy Note Archive 12-08, Levy Economics Institute.
When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_740. 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: (Marie-Celeste Edwards)
If references are entirely missing, you can add them using this form.