Abstract
Europe has not done well in the years since the 2008 crisis, with a double dip recession and a recovery far slower than that of the US from whence the crisis came. Among the key reasons for this dismal performance is the euro, or more precisely, the structure of the Eurozone, the institutions, rules, and regulations that were created to ensure growth and stability of a single currency amongst a diverse set of countries—and the failure to do some of the things (like the establishment of a common deposit insurance system) that should have been done. The paper describes how Europe created a divergent system, with increasing disparities between the richer and poorer countries, and the role of certain beliefs, prevalent at the time, but since questioned, about what makes for good economic performance.
Excerpt of the chapter “Crises: Principles and Policies: With an Application to the Eurozone Crisis,” in Life After Debt: The Origins and Resolutions of Debt Crisis, Joseph E. Stiglitz and Daniel Heymann (eds.), Houndmills, UK and New York: Palgrave Macmillan, 2014. Permission granted by the Author and rights acquisition to the Publisher.
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Notes
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See Mundell (1961).
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By the same token, if some of the burden of taxation is imposed on capital, it will induce capital to move out of the country.
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Some see an advantage: buying influence over that country’s senators because less expensive.
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The exit from Spanish banks while significant—and leading to a credit crunch—has been slower than some had anticipated. This in turn is a consequence of institutional and market imperfections (for example, rules about knowing your customer, designed to limit money laundering), which interestingly the neo-classical model underlying much of Europe’s policy agenda ignored. There is far less of a single market than it is widely thought.
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Stiglitz, J.E. (2017). The Fundamental Flaws in the Euro Zone Framework. In: da Costa Cabral, N., Gonçalves, J., Cunha Rodrigues, N. (eds) The Euro and the Crisis. Financial and Monetary Policy Studies, vol 43. Springer, Cham. https://doi.org/10.1007/978-3-319-45710-9_2
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DOI: https://doi.org/10.1007/978-3-319-45710-9_2
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