Financial and Fiscal Interaction in the Euro Area Crisis: This Time was Different

Lucrezia Reichlin, Alberto Caruso and Giovanni Ricco ()

No 13016, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper highlights the anomalous characteristics of the Euro Area `twin crises' by contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the business cycle fluctuations of the previous decades. We report three stylised facts. First, the contraction in output was marked by an anomalous downfall in investment, while consumption, savings and unemployment followed their historical relation with GDP. Second, households' and financial corporations' debts, and house prices deviated from their pre-crisis trends. Third, the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and so was the fiscal consolidation that followed. Our analysis points to the financial nature of the crisis as a likely explanation for these facts. Importantly, the `anomaly' in public deficit is in large part explained by extraordinary measures in support of the financial sector, which show up in the stock-flow adjustments and reveal a key interaction between the fiscal and the financial sectors.

Keywords: Euro area; Government debt; Recessions (search for similar items in EconPapers)
JEL-codes: C11 C32 C54 E52 E62 F45 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP13016 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Financial and fiscal interaction in the Euro Area crisis: This time was different (2019)
Working Paper: Financial and fiscal interaction in the euro area crisis: this time was different (2019)
Working Paper: Financial and fiscal interaction in the Euro Area crisis: This time was different (2019)
Working Paper: Financial and fiscal interaction in the euro area crisis: this time was different (2019)
Working Paper: Financial and fiscal interaction in the Euro Area crisis: This time was different (2019)
Working Paper: Financial and fiscal interaction in the euro area crisis: this time was different (2019)
Working Paper: Financial and Fiscal Interaction in the Euro Area Crisis: This Time was Different (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:13016

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP13016

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().