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The financial origin of the euro area fiscal wound

Alberto Caruso, Lucrezia Reichlin and Giovanni Ricco, (2019), “The financial origin of the euro area fiscal wound”, VoxEU, 13 September

One of the most cited books written in the aftermath of the 2008 financial crisis, which documents the special characteristics of recessions associated with financial crises over time and across countries, is titled “This time is different”. This column argues that the joint behaviour of the public deficit and public debt in the euro area from 2008 to 2013 – characterised by high and persistent public debt despite a severe fiscal consolidation since 2009 – cannot be explained by the unprecedented collapse in output and the historical relationship between macroeconomic, fiscal and financial variables. Rather, it reflects specific characteristics of the crisis years and the size and nature of the public support to the financial sector.

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