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Conflicting claims in the eurozone? Austerity's myopia and the need for a European Federal Union in a post-Keynesian eurozone center–periphery model

Conflicting claims in the eurozone? Austerity's myopia and the need for a European Federal Union in a post-Keynesian eurozone center–periphery model

Botta, Alberto (2014) Conflicting claims in the eurozone? Austerity's myopia and the need for a European Federal Union in a post-Keynesian eurozone center–periphery model. Review of Keynesian Economics (ROKE), 2 (1). pp. 45-70. ISSN 2049-5323 (Print), 2049-5331 (Online) (doi:https://doi.org/10.4337/roke.2014.01.03)

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Abstract

In this paper we study the role of the eurozone’s institutional design in determining the sovereign debt crisis of the peripheral euro countries by means of a post-Keynesian euro- zone center–periphery model. Within this framework, three points are formally addressed: (1) the incomplete nature of the eurozone with respect to a fully fledged federal union has significantly contributed to generating diverging trends and conflicting claims between central and peripheral eurozone countries in the aftermath of the 2007–2008 financial meltdown; (2) center–periphery diverging trends may disappear and a systemic crisis may occur should financial turbulences deepen in big peripheral economies, possibly spreading to the center; and (3) fiscal austerity does not address the core problems of the eurozone. The creation of a European federal government, capable of implementing anti-cyclical fiscal policies through a federal budget, and of a government banker consti- tutes the most promising solution to stabilize the macroeconomic picture of peripheral countries and to tackle the crisis. The unlimited bond-buying program recently launched by the ECB is a positive albeit mild step in the right direction away from the extreme mon- etarism that has shaped eurozone institutions thus far.

Item Type: Article
Uncontrolled Keywords: Eurozone debt crisis, post-Keynesian center–periphery model
Faculty / Department / Research Group: Faculty of Business > Department of International Business & Economics
Last Modified: 14 Oct 2016 09:36
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
URI: http://gala.gre.ac.uk/id/eprint/14452

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