Toward a sustainable eurozone

De Grauwe, Paul and Ji, Yuemei (2020) Toward a sustainable eurozone. In: Economic Globalization and Governance: Essays in Honor of Jorge Braga de Macedo. Springer International (Firm), pp. 121-138. ISBN 9783030532642

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Abstract

We argue that the various proposals aimed at stabilizing the Eurozone using financial engineering do not eliminate the inherent instability of the sovereign bond markets in a monetary union. During crises, this instability becomes systemic and no amount of financial engineering can stabilize an otherwise unstable system. The real stabilization of the Eurozone entails two mechanisms. The first is the willingness of the European Central Bank (ECB) to provide liquidity in the Eurozone sovereign bond markets during times of crisis. The ECB has set up its Outright Monetary Transactions (OMT) program to do this. However, OMT is loaded with austerity conditions, which will be counterproductive when used during recessions, which is when crises generally occur. That is why a second mechanism is necessary, which consists in creating a Eurozone budget.

Item Type:	Book Section
Additional Information:	© Springer Nature Switzerland AG 2021.
Divisions:	European Institute
Subjects:	H Social Sciences > HB Economic Theory
Date Deposited:	24 Apr 2024 13:48
Last Modified:	25 Apr 2024 23:18
URI:	http://eprints.lse.ac.uk/id/eprint/122777

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