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Weathering the Crisis and Beyond: Perspectives for the Euro Area

  • Christoph M. Schmidt

    ()

  • Benjammin Weigert

The euro area is experiencing a severe and highly complex crisis. It comprises three problem areas, the difficulties of some highly indebted European sovereigns to ascertain funding at palatable cost, the disconcerting fragility of the European banking system and disappointing growth prospects in the euro area periphery. To make matters even worse, these problems have developed into a systemic crisis of the European Monetary Union (EMU), since observers have apparently developed fundamental doubts over its integrity. To overcome this systemic crisis, it would not be sufficient, if only the stronger euro area economies provided more solidarity, nor would it be sufficient, if only all of Europe adhered to ironclad budgetary discipline from now on. A European Redemption Pact could be a strong political commitment to the EMU and offer a bridge between the proponents of fiscal discipline and structural reform and those governments advocating for more support. This pact would entail two indispensable aspects, the codification of a credible and coherent reform path and a temporary and limited instrument for joint refinancing.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0409.

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Length: 34 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:rwi:repape:0409
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  1. Dötz, Niko & Fischer, Christoph, 2010. "What can EMU countries' sovereign bond spreads tell us about market perceptions of default probabilities during the recent financial crisis?," Discussion Paper Series 1: Economic Studies 2010,11, Deutsche Bundesbank, Research Centre.
  2. Maveyraud-Tricoire, Samuel & Rous, Philippe, 2009. "RIP and the shift toward a monetary union: Looking for a "euro effect" by a structural break analysis with panel data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(2), pages 336-350, April.
  3. Christian Aßmann & Jens Hogrefe, 2009. "Determinants of government bond spreads in the Euro area – in good times as in bad," Kiel Working Papers 1548, Kiel Institute for the World Economy.
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