Weathering the Crisis and Beyond: Perspectives for the Euro Area

36 Pages Posted: 9 Apr 2013

See all articles by Christoph M. Schmidt

Christoph M. Schmidt

RWI - Leibniz-Insitut für Wirtschaftsforschung (RWI Essen); Ruhr-Universität Bochum (RUB); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR)

Benjamin Weigert

University of Giessen - Department of Economics

Date Written: March 1, 2013

Abstract

The euro area is experiencing a severe and highly complex crisis. It comprises three problem areas, the diffi culties of some highly indebted European sovereigns to ascertain funding at palatable cost, the disconcerting fragility of the European banking system and disappointing growth prospects in the euro area periphery. To make matters even worse, these problems have developed into a systemic crisis of the European Monetary Union (EMU), since observers have apparently developed fundamental doubts over its integrity. To overcome this systemic crisis, it would not be sufficient, if only the stronger euro area economies provided more solidarity, nor would it be sufficient, if only all of Europe adhered to ironclad budgetary discipline from now on. A European Redemption Pact could be a strong political commitment to the EMU and off er a bridge between the proponents of fiscal discipline and structural reform and those governments advocating for more support. This pact would entail two indispensable aspects, the codification of a credible and coherent reform path and a temporary and limited instrument for joint refinancing.

Keywords: Euro crisis, governance of the euro area, debt sustainability, financial market

JEL Classification: E60, E42, H6, G28, F24

Suggested Citation

Schmidt, Christoph M. and Weigert, Benjamin, Weathering the Crisis and Beyond: Perspectives for the Euro Area (March 1, 2013). Ruhr Economic Paper No. 409, Available at SSRN: https://ssrn.com/abstract=2246763 or http://dx.doi.org/10.2139/ssrn.2246763

Christoph M. Schmidt (Contact Author)

RWI - Leibniz-Insitut für Wirtschaftsforschung (RWI Essen) ( email )

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Benjamin Weigert

University of Giessen - Department of Economics ( email )

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Giessen, Hessen D-35394
Germany

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