The Crisis in the Euro Area: An Analytic Overview (original) (raw)
The Lessons from the Euro Experience
AUSTRAL: Brazilian Journal of Strategy & International Relations
Twenty years ago, amid a great fanfare of enthusiasm, the Treaty of Maastricht created the European union and inaugurated the process for creating a single European currency for most of the then members (except the UK and Sweden, and later Denmark, that were given a temporary exemption) and all future members. Twenty years later, the anniversary of the treaty passed almost unnoticed (European Policy Centre, 2012). On that day, however, the impact of the treaty was never far from the headlines, as had also been the case for almost every day over the previous months. The Lehman brothers bankruptcy in September 2008 not only triggered a financial crisis that threatened to engulf the world, but it set in motion a series of shocks that have since reverberated through the Euro-area. It is fair to say that the crisis-management has not been an example of stream-lined efficiency, and there are lessons to be learned from that experience.However, the development of the Euro, and the crisis th...
The Euro and its Guardian of Stability: Fiction and Reality of the 10th Anniversary Blast
Monetary Policy and Central Banking, 2012
This paper investigates why Europe fared particularly poorly in the global economic crisis that began in August 2007. It questions the self-portrait of Europe as the victim of external shocks, pushed off track by reckless policies pursued elsewhere. It argues instead that Europe had not only contributed handsomely to the buildup of global imbalances since the 1990s and experienced their implosive unwinding as an internal crisis from the beginning, but that it had also nourished its own homemade intra-Euroland and intra-EU imbalances, the simultaneous implosion of which has further aggravated Europe's predicament. To keep its own house in order in the future, Euroland must shun the outdated "stability oriented" policy wisdom inherited from Germany's mercantilist past and Bundesbank mythology. Steps toward a fiscal union to back the euro are also warranted.
A structural and monetary perspective of the euro crisis
The Financialization Response to Economic Disequilibria
This chapter presents an analysis of the financial crisis by combining a Marxian and financial Keynesian perspective. Both are framed in a longrun, structural perspective of capitalist dynamics. We are experiencing the crisis not of a generic neoliberalism or a empty financialization, but of money manager capitalism, which was built upon centralization without concentration of capital, new forms of corporate governance, aggressive competition, capital market inflation, indebted consumption. A world able to gain from the same old exploitation in new forms, to provide internal demand and present itself as a stable Great Moderation. It can be characterized as financially privatized Keynesianism, based on a new monetary policy and a new autonomous demand driving the process, a configuration that is necessarily unsustainable. The crisis is evolving from a Great Recession to a Lesser Depression. The chapter is divided into seven sections. Section 1.2 first gives a general scenario of the global and European crises since 2007-2008. Sections 1.3 and 1.4 summarize the main approaches-mainstream and heterodox-on trade imbalances, and Section 1.5 offers a truly credit money view of external imbalances. Section 1.6 complements this analysis by looking into the new geography of the industrial and trade relations within the European Union (EU) and Section 1.7 applies the previous discussions to the concrete reality of the euro crisis. Finally, in Section 1.8 some preliminary conclusions are provided. Mainstream theory woke up relatively late to the euro crisis, and it is fair to say that it is still in denial regarding many aspects of the current global trend towards very unstable stagnation. The euro crisis was first posed as a fiscal problem, caused by the profligate behaviour of some peripheral countries, and then moved into a current accounts crisis, caused by
The eurozone as a flawed currency area
The European single currency system has come under unprecedented strain during the past three years and there is little reason to assume that this will diminish, in any significant way, in the near future. This article briefly explores the background to the current eurozone crisis before outlining a number of potential solutions. Specifically, we discuss how the credit crunch induced recession of 2008 triggered the problems within the eurozone regarding sovereign debt, looking at the issues of spill-over and free-rider effects, together with the implementation of EMU fiscal rules. The analysis is then extended by outlining a series of potential remedies. This consists of a critical evaluation of solutions that the EU has already instigated (i.e. moral persuasion, financial relief measures and debt default), together with a series of alternative propositions (i.e. fiscal federalism and a European Clearing Union) and even the collapse of the euro.
A Fundamental Interpretation of the 2009-2012 Crisis of the Eurozone
Extreme volatility and high uncertainty characterized European financial markets between 2010-2012. In addition to the “financial contagion” effects of the 2007-2009 Subprime Mortgages crisis, the European financial markets’ turbulence was also related to a more fundamentally economic reality: structural heterogeneity among the Eurozone countries which was aggravated by the introduction of the euro in 1999. During the first decade of the Monetary Union there was a productive specialization among Eurozone countries that, contrary to the expectations of public policy designers, resulted in an increased differentiation of the member countries. That process resulted in a deepening gap; there are some countries that have been exceptionally good performers in several dimensions, and there are others that have lagged in most. More specifically, we aim to explain why several European countries were subject to a more adverse reaction from the financial markets than others, pushing them to the brink of illiquidity and making the default on their governments’ obligations a close possibility. To illustrate the increased heterogeneity observed among EU members since the introduction of the euro, we analyze a representative sample of eight countries: the four largest economies in the Eurozone, Germany, France, Italy and Spain; and four smaller economies, of which two are relatively successful exporters, Ireland and The Netherlands; and two more, Greece and Portugal, which have recently undergone serious fiscal and debt problems, so as to need a bailout from the EU, the ECB and the IMF, not to mention the case of Greece whose economy has deteriorated enormously under a populist government and has fallen in arrears on its international compromises.
Editorial: 2010, Kill or Cure for the Euro?
Jcms: Journal of Common Market Studies, 2011
Another year, another set of crises. The year 2010 brought the EU fresh difficulties, with renewed pressure on the single currency precipitated by bail-outs first for Greece and then for the Irish Republic. Two dramas were played out over the course of the year: the first was the sovereign debt crisis on the eurozone's periphery that at one point seemed to imperil the single currency's future; the second was a Brussels-based crisis that passed largely unobserved beyond the city's ring road and concerned the details of the implementation of the Lisbon Treaty.
2017
During 2016, "Akademska knjiga" from Novi Sad (edited by NUMMUS) published in the Serbian language this important work of the world-renowned economist J. Stiglitz. The scope of this monograph is over 380 pages, excellently structured in four special parts of equal volume, largely interdependent regarding treated issues (with a foreword, afterword and an index of terms and guidelines, as well as many bibliography items expressed in more than 200 footnotes, citations and explanations. The first part entitled "European crisis" (29-108) is very comprehensive because it introduces the reader into the issue of the crisis caused by earthquakes in the eurozone. It consists of three related, turbulent chapters: 1) The European crisis, 2) Euro expectations and reality, and 3) The sad effect of Europe. The author states that the global financial crisis of 2008 seamlessly turned into a European crisis. It is caused by events that present symptoms, not causes, of deeper problems in the eurozone structure: interest rates rose on government bonds of Greece and some other eurozone countries and some other countries could not get access to finance in any possible way. Although many factors contributed to the troubles of Europe, the basic error is only one: the creation of a common currency, the euro or more specifically, the creation of a common currency without creating a set of institutions that would enable authorities to the area as diverse as Europe to function effectively with one single currency. The second part entitled "The upside from the beginning" (109-202), also consists of three chapters: 1) Can a common currency succeed at all? 2) Euro: split system, 3) Monetary Policy and the European Central Bank; The second part of the book (from 4 to 6 chapter) reviews the necessary conditions for a successful monetary union, what Europe has actually done and how the discrepancy between what should have been done and what has been done has led to the failure of the euro, to the crisis that followed soon after its creation, and to a fork, where the rich get richer and the poor get poorer-which further complicates the success of a single currency system. The third part entitled "The wrong Policies" (203-266) consists of two chapters: 1) Crisis measures: how Troika politics deteriorated imperfect structure of the eurozone and guaranteed a depression, and 2) Structural reforms that deepened the failure; This part of the book (chapters 7 and 8), describe in detail how the eurozone reacted to the crisis and how those countries "came for help" with programs that actually deepened and prolonged the consequences. The fourth part entitled "What next?" (267-352), consists of four chapters: 1) Creation of a functional eurozone, 2) Is the amicable divorce possible?, 3) To flexible euro, 4) What next ... This part (9 to 12 chapter) explains what can be done to restore prosperity to Europe. A key hypothesis of this author is that the eurozone cannot survive because it was wrongly placed in the very beginning. Thus, he argues that the single currency in the region with enormous economic and political differences cannot easily succeed. In fact he argues that the single currency requires a fixed exchange rate between the member states and a uniform interest rate. Besides, the rules must be sufficiently
The euro and the dollar in the crisis and beyond
The euro has survived its first decade, overcoming questions about its viability and political and economic raison d'être. “The Euro and the Dollar in the Crisis and Beyond,” a conference sponsored by Bruegel, the Peterson Institute for International Economics and the Federal Reserve Bank of Dallas, marked the milestone on March 17, 2010, with discussions of Europe's monetary integration, the euro's global role relative to the dollar and the currency's prospects in the aftermath of the 2008–09 global recession. ; Adam Posen, senior fellow at the Peterson Institute and member of the Monetary Policy Committee of the Bank of England, set the tone in opening remarks, referring to “what is a very critical economic relationship and some very interesting economic issues” involving the single currency. Vítor Gaspar, a special adviser of the Banco de Portugal and former director general of research at the European Central Bank (ECB), lauded the euro's “extremely successfu...
How the Euro Crisis Evolved and how to Avoid Another: EMU, Fiscal Policy and Credit Ratings
Journal of Macroeconomics, 2014
The papers and commentaries presented at the conference addressed many important issues related to the functioning of the euro area. Our hope is that these contributions will help improve understanding of the nature of Europe's monetary union, the underpinnings of its crisis, and the changes that are needed so that crises will be prevented in the future. The papers examined two main sets of issues. One group of papers, adopting a union-wide perspective, assessed the aspects of the euro area's institutional architecture that, with the benefit of hindsight, may have contributed to the crisis, and the policy responses to the crisis at the union level. A second group of papers focused on developments in three crisis countries-Greece, Ireland, and Portugal.
The crisis and adaptations of the Euro and monetary theory.pdf
The crisis and adaptations of the Euro and monetary theory, 2018
The ECB was created as a central bank with a reserve base. Its primary role was to issue liquidity to the Eurozone through counterparty banks against collateral. Inflation control through managed money supply was a policy pillar but ECB has rather targeted interest rates. The common money was firewalled from national government finances through strict budget deficit and debt rules. Following the 2008 financial crisis, the sovereign debt blow-up in southern countries precipitated the setting-up of new mechanisms, concerning: 1) No-bailout clause. The EFSF and ESM was set up with a view to overcoming the restriction on ECB not to bail out governments. Although these mechanisms are purportedly at arm’s length, ECB allows ever riskier government bonds as collateral and conducts Outright Monetary Transactions. Austerity programmes in debtor countries have determined and enforced policy directions as a price to pay for assistance to countries through ESFS and, later, ESM. 2) Lender of last resort. There is considerable confusion about this role, very often confounded with the bailout of governments. Some claim ECB should not be a lender of last resort to the banking system. However, inasmuch as it provides liquidity to banks, the step is small towards assisting them with credit when in trouble. Emergency Liquidity Assistance from a national central bank to its commercial banks was created to circumvent the credit rule. Other central banks can provide guarantees and eventually ECB has stepped in. 3) Imbalances. TARGET 2 is a settlement system, which also helps to overcome payment imbalances created by real-economy differentials among countries reinforced by financial factors. Trade imbalances are mirrored in the TARGET 2 accounts. The system also has its own risky features. The paper examines these evolutions through a capital-market approach, including the role of international speculators and markets. How have non-euro EU countries fared? The euro had a monetarist imprint, but does it increasingly conform to other historical experiences? Marxian and Keynesian political-economy explanations of the causes and the aftermath of the debt crisis are discussed as well as the lights that the euro evolution sheds on monetary and credit theory.
Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. v Contents List of Illustrations vi Acknowledgements vii European Integration Timeline viii Chronology of Eurozone Crisis xiii Glossary of Terms xxi 1 The Eurozone as a Flawed Currency Area 1 Part I The Economics of Monetary Integration 2 The Development of Microfoundations of Macroeconomics 23 3 Contemporary Macroeconomic Thought and Its Discontents 40 4 Theoretical Considerations of a Single Currency 55
Did the euro trigger the European dept crises?
JOURNAL OF INTERNATIONAL STUDIES, 2015
The European integration process has now reached the stage of economic and monetary union . European Union met the ongoing Eurozone sovereign debt crisis during this integration process. The debt crisis first emerged in Greece in 2009 and then became a Eurozone debt crisis by spreading within 2 years to Ireland, Spain, Portugal and Italy. This study will seek answers to whether the integration of uniform currency caused the European debt crises. In order to understand this, first the emergence of the European debt crises and its possible causes will be discussed and then the data and current situation of the crises will be analyzed with the help of microeconomic facts.
The European Currency Crisis The catalyst for the September currency crisis in Europe was the tension over the stance of monetary policy in Germany and other countries in the European Monetary System (EMS), the arrangement that limits exchange rate fluctuations among members. High German interest rates were blamed for limiting the prospects for an economic recovery in Europe by forcing other members to keep their own rates high in order to maintain the value of their currencies against the German mark. Market speculation against the parities set by the Exchange Rate Mechanism (ERM) of the EMS has resulted in the devaluation of several currencies against the mark, as well as the withdrawal of the United Kingdom and Italy from the ERM. These developments have raised new questions about the current direction of German monetary policy, the future of the EMS, and the prospects of a European monetary union. This Weekly Letter reviews and interprets these developments.
The continuing crisis of the euro — a weak link in the global financial system?
Ensaios FEE, 2012
A origem e as causas da crise financeira europeia são analisadas. Dívida, desequilíbrios orçamentários, recessão e desemprego são as imagens da Europa de hoje. Esses problemas vêm sendo tratados com medidas voltadas aos interesses dos credores de corte de gasto público e aumento de impostos. Qual a perspectiva de a União Europeia (EU) reconquistar seu "momentum" em termos de integração econômica e imagem? Há outro caminho de saída da crise diferente de um prolongado regime de austeridade? A forte onda esquerdista das recentes eleições na Grã--Bretanha, na França e na Grécia foi vista como sinal de uma oposição do sentimento popular contra a quebra da rede de seguridade social e das despesas públicas em geral como solução para os problemas orçamentários, mas quanto isso pode se traduzir em mudança nas posições seguidas pela União Europeia e pelo Banco Central Europeu? Ou será que a UE está dirigindo-se sem esperança para uma fratura não apenas da Zona do Euro, mas também de seus outros instrumentos de integração econômica? O crescimento de forças nacionalistas de direita na Hungria, na França e, em menor intensidade, também na Grécia são indicativo nessa direção. Antes de tratar da questão central, é necessário começar por algumas questões fundamentais sobre o euro como sistema monetário e seu lugar na economia mundial. Ao final, algumas conclusões são tiradas da presente crise do euro em relação ao estado da teoria econômica em geral, conclusões que podem ser relevantes para o debate entre economistas no Hemisfério Sul. Crise financeira; integração econômica; teoria econômica. * Artigo recebido em maio 2012 e aceito para publicação em jul. 2012.
The euro – whence it came, where it goes
The euro was expected to catalyse 'ever deeper union' among its member states. Instead, the euro has been captured by bad financial habits of old and has put the euro north and south in fierce neonationalist confrontation with each other. The currency union is now at the crossroads between either getting stuck in the mud of an ever deeper joint liability community bound to continual decline or a reset of the euro and realignment of the Eurosystem based on a return to the no-bailout rule and national responsibility for national debt.