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The governance of a fragile eurozone

de Grauwe, Paul (2012) The governance of a fragile eurozone. Australian Economic Review, 45 (3). pp. 255-268. ISSN 0004-9018

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Abstract

When entering a monetary union, member countries change the nature of their sovereign debt in a fundamental way; that is, they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries' sovereigns into defaulting. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise. I analyse the implications of this fragility for the governance of the Eurozone. I argue that the role of the European Central Bank as a lender of last resort is crucial in reducing the fragility of the Eurozone. In addition, steps towards a budgetary union are key in structurally strengthening the union.

Item Type: Article
Official URL: http://www.blackwellpublishing.com/journal.asp?ref...
Additional Information: © 2012 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
J Political Science > JZ International relations
Journal of Economic Literature Classification System: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E60 - General
F - International Economics > F5 - International Relations and International Political Economy > F59 - International Relations and International Political Economy: Other
Sets: Departments > European Institute
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 19 Sep 2012 15:59
URL: http://eprints.lse.ac.uk/46186/

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