The Sovereign Debt Crisis in Europe: Impacts on Prices, Stability and Growth

Universita Cattolica del Sacro Cuore Occassional Paper No. 104

27 Pages Posted: 8 Feb 2015

See all articles by Angelo Arcelli

Angelo Arcelli

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS)

Frank Sensenbrenner

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS)

Date Written: January 1, 2015

Abstract

The solution to the sovereign debt crisis and the restoration of confidence in the European project are critical for the long term stability and economic growth of the region, and for the stability of worldwide financial market. Defining debt sustainability is not an easy task. In the past, economic theory has suggested different proposals. European Union member countries decided to opt into a specific level of Public Debt to GDP ratio (60%) by signing the Maastricht Treaty and the Growth and Stability Pact.

Public debt sustainability during the core of the financial crisis (2008-2010) became under stress. The heritage of such period is very different in the Eurozone, leaving weaker countries more exposed and Italy, in particular, given its large public debt, with very reduced margin for manoeuvre.

What is now happening in Europe seem to be the response of a long path of uncertain developments and the return to a more focused planning on a long term financially stable union. In November 2014 the Single Supervisory mechanism (SSM) will be in place, allowing ECB to take over supervision responsibilities on the bulk of Eurozone banks (around 85% of the total assets as an aggregate). This step, followed by the developing of a Single Resolution Mechanism (SRM) in 2015 will allow Eurozone to have a fully fledged Central Bank.

Will all this be enough to stabilize the Eurozone and revamp the path of European Union in the long term? The answer will come only from future event, but, nevertheless, it is sure that financial stability in a large area as Eurozone will require again a renewed path to convergence for national economies and a globally stable and ordered situation of public accounts. This may imply the need of further significant structural reforms and, possibly, a political agreement on the long term shape of the Union.

Keywords: Convergence, Economic Growth, Globalization, Growth, US, EU

JEL Classification: F62

Suggested Citation

Arcelli, Angelo and Sensenbrenner, Frank, The Sovereign Debt Crisis in Europe: Impacts on Prices, Stability and Growth (January 1, 2015). Universita Cattolica del Sacro Cuore Occassional Paper No. 104. Available at SSRN: https://ssrn.com/abstract=2561628

Angelo Arcelli

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

Frank Sensenbrenner (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

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