The Euro Area sovereign debt crisis: Some implications of its systemic dimension

• Type: Academic Work
• Date: 2011

Authors

Argentino Pessoa (Author) FEP

Scientific classification

FOS: Social sciences > Economics and Business

Other information

Abstract (EN): After the beginning of the euro area, countries in its periphery engaged in weighty borrowing from foreign private investors, allowing domestic spending to outpace incomes. Now, these countries face debt crises reflecting a loss of creditor confidence in the sustainability of their finances from which results an abrupt end in private foreign lending to these economies. The debt crisis made evident the asymmetry between core and periphery countries, which is visible in trends in saving, consumption and investment. These divergent patterns have contributed to view the debt crisis as a problem of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) that can be contained in the periphery, or as a new version of the fable of the Grasshopper and the Ant. We dispute this reductionism showing that the debt crisis is systemic and its solution cannot be found with more fiscal rules and austerity in peripheral countries alone. It will imply, if not an increase in fiscal and political integration, at least a higher coordination at the political and economic front and a new governance structure.

Language: English

Type (Professor's evaluation): Scientific

Reference: MPRA Paper 35328, University Library of Munich, Germany

No. of pages: 26