Financial Markets and Debt Crisis in European Union: Preventing spillover effects of financial crisis between EU periphery and the eurozone

Dubravko Radosevic ()

MPRA Paper from University Library of Munich, Germany

Abstract: When the financial crisis revealed weaknesses in eurozone governance, EU responded with new prevention and crisis resolution governance structure and counter-cyclical policies. A new surveillance procedure for the prevention and correction of macroeconomic imbalances, the so called Macroeconomic Imbalance Procedure (MIP). The EC has recognized the existence of excessive imbalances that requires strong and comprehensive policy measures to undertake significant adjustments. International competitiveness indicators and policy instruments are the most important for correction of external imbalances. This is also one of the major challenges in the euro zone – the symmetric adjustment of the intra – euro area competitiveness divergences and external imbalances. For non – euro area EU members, monetary strategies and exchange rate policies are highly important instruments of adjustment process. Spillover effects of financial crisis in EU periphery (non – EMU economies) could be damaging for the eurozone economies. The European economic governance mechanisms are inconsistent with specific position of the non - euro area countries of the EU. The aim of this policy paper is to analyze European economic governance for non – euro area members. Our reform proposals are based on the two basic areas of improvements in European economic governance for non – EMU members of the EU: (a) new approach to the European Semester, and (b) new financial assistance facilities for non – euro area countries, in order to reduce contagion risk in EU.

Keywords: European Union debt crisis; European economic governance; EU conditionality; European Semester; spill – over effects; external adjustment mechanisms; crisis mechanisms for non – EMU economies; Brexit; Italy’s banking crisis; ECB; Target 2 (search for similar items in EconPapers)
JEL-codes: B5 B50 E60 E61 F30 F33 F36 F4 F42 H1 H12 (search for similar items in EconPapers)
Date: 2016-12-11, Revised 2017-03-03
New Economics Papers: this item is included in nep-eec, nep-hme, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:78613

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