Policy Responses to the European Debt Crisis - Treating the 'Symptoms' or the 'Disease'?

27 Pages Posted: 25 Oct 2012

See all articles by Angelos A. Antzoulatos

Angelos A. Antzoulatos

University of Piraeus - Department of Banking and Financial Management

Date Written: October 24, 2012

Abstract

The conventional narrative for the European debt crisis stresses three factors, namely, bad policies and profligacy in the afflicted countries –mostly southern ones, flaws in the EMU design, and wise policies in the northern frugal countries. This paper argues that the root causes of the crisis lie in the failure of many ‘safety valves’ of market economies, at many levels of the society, both in the crisis countries and in the more ‘prudent’ EMU-countries, in an economic environment where unfettered finance can overwhelm even the biggest and best managed economies. Hence, the policy responses based on the conventional narrative are akin to treating the ‘symptoms’, not the ‘disease’. As such, they may be setting the foundations for a bigger crisis in the future by strengthening the always-present perverse incentives of many economic players and by proposing complex and unworkable regulatory and supervisory structures. This, together with the unequal sharing of the burden of adjustment – both across and within countries, bodes ill for the long-term prospects of EMU, despite that the aforementioned failures are not intrinsically related to the euro.

Keywords: bank supervision, economic and financial imbalances, EMU, European debt crisis, financial regulation, market discipline

JEL Classification: E65, F34, F36 

Suggested Citation

Antzoulatos, Angelos A., Policy Responses to the European Debt Crisis - Treating the 'Symptoms' or the 'Disease'? (October 24, 2012). Available at SSRN: https://ssrn.com/abstract=2166186 or http://dx.doi.org/10.2139/ssrn.2166186

Angelos A. Antzoulatos (Contact Author)

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

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