Euro Crisis or Public Debt Crisis? With a Remedy for the Latter Case
PSL Quarterly Review, Vol. 65 No. 262, pp. 215-236, 2012
22 Pages Posted: 25 Oct 2014
Date Written: September 15, 2012
The European crisis did not originate with the Euro but with the excessive public debt of peripheral Eurozone countries. The 'great moderation' that had kept the euro sheltered from the storms proved a boon, because it granted the currency the status of a sound asset, but it was also a bane because it had led euro holders to believe that the euro area had implicitly reached such a degree of cohesion as to make a Greek or Italian government security almost as sound as a German one. If awareness of reality had dawned sooner, interest rates on the peripheral countries’ public debt would have been considerably higher and government leaders might have woken up sooner from the dream of governing a country that could outlast any storm thanks to its ample private wealth, despite its massive public debt.
Keywords: euro, crisis, public debt
JEL Classification: H63, F34, H12
Suggested Citation: Suggested Citation