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Where now for the euro area crisis? Interim assessment and a model for a stable euro area

Gustav Horn, Fabian Lindner, Silke Tober and Andrew Watt

No 75e-2012, IMK Report from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: The euro area crisis drags on. Austerity measures in the crisis countries are deepening an already severe recession and this is having knock-on effects on the entire currency area. Policymakers have largely ignored the central cause of the crisis - the persistent failure by member states to keep their inflation rates in line with the ECB's target - and policy measures have instead been narrowed to a one-sided focus on fiscal deficit reduction. A fundamental change in economic policy is therefore needed. Fiscal consolidation policies must be backloaded and a debt redemption fund set up. A reformed fiscal pact needs to be introduced that is focused on avoiding current account imbalances. In the longer run this task should be performed by a European Monetary Fund.Length: 27 pages

Date: 2012
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