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The Euro and the global crises: finding the balance between short term stabilization and forward looking reforms

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  • Joshua Aizenman

Abstract

This paper analyzes reforms and adjustments in the context of the Euro and the global financial crises. Taking the perspective of the evolutionary approach to institutions, the formation of a new currency area is not unidirectional. The process leading to the euro is an example of a common upbeat and optimistic attitude to the formation of new institutions. Such a Panglossian attitude to policies may reflect built-in fiscal myopia, possibly both at the level of the principal [the policy maker] and of the agents [consumers and households]. Next, the paper reviews the evolution of institutions buffering the stability of unions in the aftermath of crises, where fiscal restraints and the allocation of significant bargaining clout to the Federal Center increase the stability of a union. The paper concludes with an overview of the challenges associated with finding the proper balance between financial integration and financial regulations.

Suggested Citation

  • Joshua Aizenman, 2012. "The Euro and the global crises: finding the balance between short term stabilization and forward looking reforms," NBER Working Papers 18138, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18138
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    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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