 The Euroland crisis and Germany's euro trilemmaInternational Review of Applied Economics, 2013, vol. 27, issue 3, 360-385 Abstract: This paper investigates the causes behind the Euroland crisis, particularly Germany's role in it. It is argued that the crisis is not primarily a 'sovereign debt crisis', but rather a (twin) banking and balance of payments crisis. Intra-area competitiveness and current account imbalances, and the corresponding debt flows that such imbalances give rise to, are at the heart of the matter, and they ultimately go back to competitive wage restraint on Germany's part since the late 1990s. Germany broke the golden rule of a monetary union: commitment to a common inflation rate. As a result, the country faces a trilemma of its own making and must make a critical choice, since it cannot have it all *- perpetual export surpluses, a no transfer/no bailout monetary union, and a 'clean' independent central bank. Misdiagnosis and the wrongly prescribed medication of austerity have made the situation worse by adding a growth crisis to the potpourri of internal stresses that threaten the euro's survival. The crisis in Euroland poses a global 'too big to fail' threat, and presents a moral hazard of perhaps unprecedented scale to the global community. Date: 2013 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:irapec:v:27:y:2013:i:3:p:360-385 Ordering information: This journal article can be ordered from DOI: 10.1080/02692171.2012.721757 Access Statistics for this article International Review of Applied Economics is currently edited by Professor Malcolm Sawyer More articles in International Review of Applied Economics from Taylor & Francis Journals |
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