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Please do not shoot the wrong enemy!

  • Spanò , Marcello

    ()

    (University of Insubria)

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    This work analyses external imbalances across Europe using data on sectorial gross value of assets over sixteen years (1995-2011) in founder countries of the European Union and in the whole Euro area. The empirical analysis strongly supports arguments against the thesis that in Europe sovereign debt is the problem and fiscal austerity the solution. On the contrary, it suggests that the current crisis originates from the growing disproportion of the financial sector compared to real sectors of the economy. This study divides the financial assets generated by the domestic financial companies and by the foreign sector into two aggregates: financial resources channelled to the real domestic sectors and ‘financial assets overhang’ held within the financial and foreign sector. The financial assets overhang, which boosted the relative size of the financial sector across the continent, should be considered as the main source of excess finance to be rigidly constrained.

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    File URL: http://siupt.uportu.pt/content/files/dcee/Investigacao/WP_31_2013.pdf
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    Paper provided by Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE) in its series Working Papers with number 31/2013.

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    Length: 29 pages
    Date of creation: 27 May 2013
    Date of revision:
    Handle: RePEc:ris:cigewp:2013_031
    Contact details of provider: Postal: Universidade Portucalense – Economics and Management Department (CIGE – Centro de Investigação em Gestão e Economia), Rua Dr. António Bernardino de Almeida, 541-619, 4200 – 072 Porto, Portugal
    Web page: http://www.uportu.pt/site-scripts/centro_pagina.asp?codmenu=71&codcentro=24

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    1. Aizenman, Joshua & LEE, JAEWOO, 2005. "International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence," Santa Cruz Center for International Economics, Working Paper Series qt44g3n2j8, Center for International Economics, UC Santa Cruz.
    2. repec:cup:cbooks:9780521460477 is not listed on IDEAS
    3. James Crotty, 2009. "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 563-580, July.
    4. Till van Treeck, 2008. "The political economy debate on ‘financialisation’ – a macroeconomic perspective," IMK Working Paper 01-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. John B. Taylor, 1995. "The monetary transmission mechanism: an empirical framework," Working Papers in Applied Economic Theory 95-07, Federal Reserve Bank of San Francisco.
    6. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
    7. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    8. repec:cup:cbooks:9780521466004 is not listed on IDEAS
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