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Why Austerity Can Be Self-Defeating for Member States of a Currency Union

19 Pages Posted: 3 Feb 2012 Last revised: 29 Mar 2012

Rainer Maurer

Pforzheim University

Multiple version iconThere are 2 versions of this paper

Date Written: January 15, 2012

Abstract

Despite all efforts to reduce government budget deficits, debt-to-GDP ratios of crisis-hit member states of the European Monetary Union are still growing faster than expected. At the same time GDP growth performance is poor and according to most forecasts expected to worsen. In this paper I show, based on a formal analysis of the determinants of debt-to-GDP ratios, that this is the likely outcome of austerity policy in member states of a currency union with overindebted private sectors.

Keywords: Fical Policy, Austerity Debate, Currency Union

JEL Classification: E62

Suggested Citation

Maurer, Rainer, Why Austerity Can Be Self-Defeating for Member States of a Currency Union (January 15, 2012). Available at SSRN: https://ssrn.com/abstract=1998084 or http://dx.doi.org/10.2139/ssrn.1998084

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