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The Euro Area Crisis Five Years After the Original Sin

Athanasios Orphanides ()

Credit and Capital Markets, 2015, vol. 48, issue 4, 535-565

Abstract: Why did Europe fail to manage the euro area crisis and what lessons can be drawn from this failure for Europe’s future? Studying the EU/IMF program that was imposed on Greece in May 2010 - the original sin of the crisis - highlights both the nature of the problem and the difficulty in resolving it. The mismanagement can be traced to the flawed political structure of the euro area that permitted governments of some member states to exploit problems in other member states that share the common currency. Undue influence of key euro area governments compromised the IMF’s role to the detriment of other member states and the euro area as a whole. Rather than help Greece, the May 2010 program was designed to protect specific political and financial interests in other member states. The ease with which the euro was exploited to shift losses from one member state to another and the absence of a corrective mechanism render the current framework unsustainable. In its current form, the euro poses a threat to the European project.

Keywords: IMF lending; Greece; Germany; European Union; euro; austerity; debt sustaina´bility; systemic exemption; contagion (search for similar items in EconPapers)
JEL-codes: D72 E32 E65 F34 G01 H12 H63 (search for similar items in EconPapers)
Date: 2015
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