Managing the fragility of the Eurozone by Paul de Grauwe

Vladimir Borgy, Carine Bouthevillain and Gilles Dufrénot ()
Additional contact information
Vladimir Borgy: Centre de recherche de la Banque de France - Banque de France
Carine Bouthevillain: Centre de recherche de la Banque de France - Banque de France

Post-Print from HAL

Abstract: This paper discusses sources of self‐fulfilling equilibria in the Eurozone when some governments are highly susceptible to movements of distrust by investors who fear some payment difficulty. Self‐fulfilling prophecies occur when countries become insolvent only because investors fear insolvency. They induce multiple equilibria, some of which correspond to bad equilibria and others to good equilibria. An important issue then is to solve this problem, notably to eliminate the bad equilibria. In the short‐run, the role of the central bank as a lender of last resort is key. But this raises issues about the risk inherent to its intervention (inflation, solvency). In the medium run, macroeconomic policies in the euro are central (structural reforms and the reduction of external imbalances). In the long run, it may be worth proceeding to the consolidation of national budgets and debts, which would protect the countries of being forced with default by the financial markets. Copyright © 2013 John Wiley & Sons, Ltd.

Keywords: Economie; quantitative (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Published in International Journal of Finance and Economics, 2014, 19 (1), pp.3--11. ⟨10.1002/ijfe.1479⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:hal:journl:hal-01474271

DOI: 10.1002/ijfe.1479

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().