Managing the fragility of the Eurozone by Paul de Grauwe - Archive ouverte HAL Access content directly
Journal Articles International Journal of Finance and Economics Year : 2014

Managing the fragility of the Eurozone by Paul de Grauwe

(1) , (1) , (2, 1, 3)
1
2
3

Abstract

This paper discusses sources of self‐fulfilling equilibria in the Eurozone when some governments are highly susceptible to movements of distrust by investors who fear some payment difficulty. Self‐fulfilling prophecies occur when countries become insolvent only because investors fear insolvency. They induce multiple equilibria, some of which correspond to bad equilibria and others to good equilibria. An important issue then is to solve this problem, notably to eliminate the bad equilibria. In the short‐run, the role of the central bank as a lender of last resort is key. But this raises issues about the risk inherent to its intervention (inflation, solvency). In the medium run, macroeconomic policies in the euro are central (structural reforms and the reduction of external imbalances). In the long run, it may be worth proceeding to the consolidation of national budgets and debts, which would protect the countries of being forced with default by the financial markets. Copyright © 2013 John Wiley & Sons, Ltd.
Not file

Dates and versions

hal-01474271 , version 1 (22-02-2017)

Identifiers

Cite

Vladimir Borgy, Carine Bouthevillain, Gilles Dufrénot. Managing the fragility of the Eurozone by Paul de Grauwe. International Journal of Finance and Economics, 2014, 19 (1), pp.3--11. ⟨10.1002/ijfe.1479⟩. ⟨hal-01474271⟩
101 View
0 Download

Altmetric

Share

Gmail Facebook Twitter LinkedIn More