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

Alberto Botta

Review of Keynesian Economics, 2014, vol. 2, issue 1, 45-70

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 eurozone 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 constitutes 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 monetarism that has shaped eurozone institutions thus far.

Keywords: eurozone debt crisis; post-Keynesian center–periphery model (search for similar items in EconPapers)
JEL-codes: E02 H63 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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