Restoring Stability to Europe

Abstract

The eurozone is in political and economic crisis. This is due to the inadequate design of the institutional structure of the eurozone and to the current poor implementation of macroeconomic policy. In designing the eurozone, well established principles of economics were ignored and major decisions were based primarily upon political considerations. Thus it was only a matter of time before these defects would become apparent. In addressing the current crisis that has developed policy makers have misdiagnosed the causes of the crisis and implemented solutions that are largely counterproductive to solving it. This paper describes the underlying factors that led to the inadequate design and improper macroeconomic response and explains what will be necessary in order to create an institutional structure and macroeconomic policy framework that can restore economic stability and growth to the region.

Keywords: Eurozone crisis, Europe, macroeconomic stability

JEL Classification: E60, E61, E62, E63, E65, E66, E58, F55, H60, H87, N14, N94, O52