The Eurozone Debt Crisis: Causes and Policy Recommendations

Zhorayev, Olzhas (2020): The Eurozone Debt Crisis: Causes and Policy Recommendations.

Abstract

During the first decade of its existence, the Eurozone performed relatively better than other large OECD economies. However, the debt crisis challenged the currency union and tested its resilience. This paper analyses the European debt crisis from the comparative political economy perspective and suggests policy options to address the fundamental roots of the crisis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Debt crisis, macroeconomic imbalances, currency union, optimal currency area, varieties of capitalism, fiscal consolidation, structural reforms
• Subjects: P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy; P - Economic Systems > P5 - Comparative Economic Systems > P51 - Comparative Analysis of Economic Systems

References

Begg, D. (Ed.). (1998). The ECB: Safe at any speed? CEPR.

Blanchard, O. (2015). Greece: Past critiques and the path forward. VOX: CEPR Policy Portal, 10 July.

Blundell-Wignall, A. (2012). Solving the Financial and Sovereign Debt Crisis in Europe. OECD Journal: Financial Market Trends, 2011(2), 201–224. https://doi.org/10.1787/fmt-2011-5k9cswmzsdwj.

Carvalho, R., Ranasinghe, D., & Wilkes, T. (2018, December 12). The life and times of ECB quantitative easing, 2015-18. Reuters. Retrieved from https://www.reuters.com/article/us-eurozone-ecb-qe/the-life-and-times-of-ecb-quantitative-easing-2015-18-idUSKBN1OB1SM.

De Grauwe, P. (2011). The European Central Bank as a lender of last resort. VOX: CEPR Policy Portal, 18 August.

De Grauwe, P. (2013). The European Central Bank as Lender of Last Resort in the Government Bond Markets. CESifo Economic Studies, 59(3), 520–535. https://doi.org/10.1093/cesifo/ift012.

De Grauwe, Paul. (2013). The Political Economy of the Euro. Annual Review of Political Science, 16(1), 153–170. https://doi.org/10.1146/annurev-polisci-060911-085923.

Europe and right-wing nationalism: A country-by-country guide. (2019, November 13). BBC. Retrieved from https://www.bbc.co.uk/news/world-europe-36130006.

Europe debt crisis timeline: Key events from 2009-2011. (2011, June 21). Retrieved from https://blogs.thomsonreuters.com/answerson/euro-zone-debt-crisis-timeline-graphic-day/.

European Stability Mechanism. (2019). Safeguarding the euro in times of crisis: the inside story of the ESM. Retrieved from https://www.esm.europa.eu/ sites/default/files/safeguarding-euro-times-crisis-inside-story-esm.pdf.

Friedman, M., & Schwartz, A.J. (1961). A Monetary History of the United States 1867-1960. Princeton University Press.

Fuertes, A., Kalotychou, E., & Orkun, S. (2015). How did the ECB save the Eurozone without spending a single euro? VOX: CEPR Policy Portal, 26 March.

Gasparotti, A., & Kullas, M. (2019). 20 Years of the Euro: Winners and Losers. An empirical study. (CEP Study). Retrieved from Centre for European Policy website: https://www.cep.eu/Studien/20_Jahre_Euro_-_Gewinner _und_Verlierer/cepStudy_20_years_Euro_-_Winners_and_Losers.pdf.

Greece crisis: Revolution in the offing? (2011, June 19). BBC. Retrieved from https://www.bbc.co.uk/news/world-europe-13830466.

Hall, P. A. (2012). The Economics and Politics of the Euro Crisis. German Politics, 21(4), 355–371. https://doi.org/10.1080/09644008.2012.739614.

Hall, P. A. (2014). Varieties of Capitalism and the Euro Crisis. West European Politics, 37(6), 1223–1243. https://doi.org/10.1080/01402382.2014.929352.

Hall, P. A. (2018). Varieties of capitalism in light of the euro crisis. Journal of European Public Policy, 25(1), 7–30. https://doi.org/10.1080/13501763.2017.1310278.

Hall, P. A., & Soskice, D. W. (Eds.). (2001). Varieties of capitalism: The institutional foundations of comparative advantage. Oxford University Press.

Hope, D. (2016). Estimating the effect of the EMU on current account balances: A synthetic control approach. European Journal of Political Economy, 44, 20–40. https://doi.org/10.1016/j.ejpoleco.2016.05.002.

Iversen, T., Soskice, D., & Hope, D. (2016). The Eurozone and Political Economic Institutions. Annual Review of Political Science, 19(1), 163–185. https://doi.org/10.1146/annurev-polisci-022615-113243.

Johnston, A., Hancké, B., & Pant, S. (2014). Comparative Institutional Advantage in the European Sovereign Debt Crisis. Comparative Political Studies, 47(13), 1771–1800. https://doi.org/10.1177/0010414013516917.

Krugman, P. (2012a, February 6). The Greek Vise. [Blog post]. Retrieved from https://krugman.blogs.nytimes.com/2012/02/06/the-greek-vise/.

Krugman, P. (2012b, February 25). European Crisis Realities [Blog post]. Retrieved from https://krugman.blogs.nytimes.com/2012/02/25/european-crisis-realities/.

Krugman, P. (2013). Revenge of the Optimum Currency Area. NBER Macroeconomics Annual, 27(1), 439–448. https://doi.org/10.1086/669188.

Lamborelle, A., Valero, J. & Álvarez, L.F., (2016, May 25). Timeline of a crisis: Europe’s economic strategy from 2008 to today. EURACTIVE. Retrieved from https://www.euractiv.com/section/euro-finance/infographic/ timeline-of-a-crisis-europes-economic-strategy-from-2008-to-today/.

McKinnon, R. I. (1963). Optimum Currency Areas. The American Economic Review, 53(4), 717–725.

McKinsey Germany (2012). The Future of the Euro. Dusseldorf: McKinsey & Co.

Moschella, M. (2014). Monitoring Macroeconomic Imbalances: Is EU Surveillance More Effective than IMF Surveillance?: Monitoring macroeconomic imbalances. JCMS: Journal of Common Market Studies, 52(6), 1273–1289. https://doi.org/10.1111/jcms.12136.

Muellbauer, J. (2013). Conditional eurobonds and the eurozone sovereign debt crisis. Oxford Review of Economic Policy, 29(3), 610–645. https://doi.org/10.1093/oxrep/grt032.

Mundell, R. A. (1961). A Theory of Optimum Currency Areas. The American Economic Review, 51(4), 657–665.

Mundell, R. A., & Swoboda, A. K. (Eds.). (1969). Monetary problems of the international economy: Papers and discussions. University of Chicago Press.

OECD. (2009). The Financial Crisis: Reform and Exit Strategies. OECD. https://doi.org/10.1787/9789264073036-en.

O’Brien, M. (2013, March 7). No, the United States Will Never, Ever Turn Into Greece. The Atlantic. Retrieved from https://www.theatlantic.com/ business/archive/2013/03/no-the-united-states-will-never-ever-turn-into-greece/273748/.

Schelkle, W. (2017). The political economy of monetary solidarity: Understanding the Euro experiment (First edition). Oxford University Press.

Schubert, C.B., & Martens, H. (2005). The Nordic model: A recipe for European success? (EPC Working Paper No. 20). Retrieved from European Policy Centre website: https://www.files.ethz.ch/isn/13888/.

What is a lender of last resort? (2019, August 26). Retrieved from https://www.ecb.europa.eu/explainers/tell-me-more/html/what-is-a-lender-of-last-resort.en.html.

Wyplosz, C. (2011). They still don’t get it. VOX: CEPR Policy Portal, 22 August, updated 25 October.

Wyplosz, C. (2015). The Eurozone crisis: Too few lessons learned. VOX: CEPR Policy Portal, 7 September.

Wyplosz, C. (2016). The six flaws of the Eurozone. Economic Policy, 31(87), 559–606. https://doi.org/10.1093/epolic/eiw008.