The Mutating Euro Area Crisis: Is the Balance between 'Sceptics' and 'Advocates' Shifting?

44 Pages Posted: 12 Mar 2013

See all articles by Francesco Paolo Mongelli

Francesco Paolo Mongelli

European Central Bank (ECB); Goethe University Frankfurt

Date Written: February 14, 2013


The destructive potential of the sovereign debt crisis of the euro area has been slowly abating since last summer, but still remains considerable. One reason for it is the sheer complexity of the crisis, which brings together several harmful factors, some long-standing, others more recent, like acts of an ever-growing and mutating tragedy. It combines the features of a financial crisis in some countries with those of a balance-of-payment crisis or sluggish growth in another, overlapping group of countries. All these factors have struck Europe before, but never all at the same time, in so many countries sharing a currency, and with limited adjustment mechanisms. Some countries must undertake sizeable stock-flow adjustments, and reinvent parts of their economies. But the crisis also has two additional dimensions, one being flaws in the governance of the euro area, and the other being an erosion of trust in the viability of the euro area itself. Such concerns have led to talk of a “bailout union”, a “permanent transfer union”, or the hegemony of a country, the lack of solidarity or of risk-sharing, the lack of vision, the risks of fiscal or financial dominance, and so on. The aim of this paper is to give expression to some thoughts on the various dimensions of the crisis without claiming to offer a coherent and conclusive view either of the crisis or the future of the euro area. While the crisis is a traumatic wake-up call, it is also a catalyst for change. Understanding the reform efforts under way will help rebalancing the views of sceptics.

Keywords: Economic and Monetary Union, Euro, Sovereign Crisis, Optimum Currency Area Theory, Governance Reform, Risk-Sharing, and Moral Hazard

JEL Classification: F33, F42, N24

Suggested Citation

Mongelli, Francesco Paolo, The Mutating Euro Area Crisis: Is the Balance between 'Sceptics' and 'Advocates' Shifting? (February 14, 2013). ECB Occasional Paper No. 144, Available at SSRN:

Francesco Paolo Mongelli (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323

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