Ballabriga, F., (2014), “Euro Zone Crisis: Diagnosis and Likely Solutions”, ESADEgeo POSITION PAPER 35, Φεβρουάριος.
This policy brief provides a short guiding tour to the euro zone crisis. It looks at the current situation, the context conditioning the solutions to the situation, how we got here, and the possible way out. The latter section outlines a set of minimum steps required to make the euro sustainable.
Southern euro countries are in a situation of vulnerability due to three factors: their high debt levels, their eroded competitiveness and their difficulties to restart growth. Together, these factors generate a vicious circle which is difficult to exit and which can even degenerate into a self-fulfilling economic downward spiral.
The reason is that deleveraging and price adjustment to regain competitiveness takes time and requires austerity, leading to output losses or stagnation. And with weak or negative growth, the debt-to-GDP ratio worsens, calling for additional austerity measures which further weaken growth and the debt position. Progressive deterioration of the debt position leads to higher default risk premiums, which again worsen the debt position. Unless stopped, this self-reinforcing process can lead to debt deflation and stagnation, or eventual loss of access to financial markets, leading to bankruptcy and deep recession.
Greece, Ireland, Portugal and Cyprus lost market access and had to be rescued. Spain and Italy experienced heavy market pressure during 2011-12, with increasing risk premiums that were only put under control when the European Central Bank stepped in and made clear its intention of acting as a lender of last resort in the sovereign debt market. Risk premiums have been decreasing over the last months. But the euro zone situation in early 2014 is still one characterized by an indebted, uncompetitive and stagnant south.
Σχετικές Αναρτήσεις
- Patel, Α., (2014), “Eurozone Crisis: Another Chapter in the Never-Ending Saga of Boom and Bust”, LSE Eurocrisis in the Press, 21 Φεβρουάριος.
- Granville, Br., (2014), “Poking the Eurozone Bear”, Project Syndicate, 21 Φεβρουάριος.
- Sanchez, J., Varoudakis, Ar., (2014), “Tracking the causes of Eurozone external imbalances: New evidence”, 6 Φεβρουάριος.