de Grauwe, Paul (2012) The governance of a fragile eurozone. Australian Economic Review, 45 (3). pp. 255-268. ISSN 0004-9018
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 |
| Date Deposited: | 19 Sep 2012 15:59 |
| URL: | http://eprints.lse.ac.uk/46186/ |
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