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Towards a Resilient Eurozone

Economic, Monetary and Fiscal Policies

Edited By John Ryan

This book examines the Eurozone crisis and the possibility of fiscal and political union in Europe, with contributions from some of the most respected experts on these topics. The book explains the complex, multidimensional crises in competitiveness, fiscal matters, banking and politics. During the crisis Germany has been criticized for misjudging the causes, focusing too much on fiscal deficits and insisting that the solution is fiscal consolidation and austerity. For many, especially those inspired by Keynesian economics, Germany has been seen as pushing the whole continent into a depression. By misjudging the causes of the crisis, insisting on widespread austerity, constraining the European central Bank (ECB) in its role of Lender of Last Resort for the sovereigns, rejecting the mutualization of Eurozone debt and providing financial help in small amounts and too late, Germany is perceived to be responsible for the possible break-up of the Eurozone. The aim of this book is to analyse whether this description, one that is shared by numerous policymakers, academics, pundits and opinion leaders, means that there is a lack of resilience in the Eurozone’s economic, monetary and fiscal policies.

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Fiscal Integration in the Eurozone: Economic Effects of Two Key Scenarios (Mathias Dolls, Clemens Fuest, Dirk Neumann and Andreas Peichl)

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Mathias Dolls, Clemens Fuest, Dirk Neumann and Andreas Peichl Fiscal Integration in the Eurozone: Economic Effects of Two Key Scenarios Introduction The debt crisis in Europe initiated a debate about deeper fiscal integration in the Economic and Monetary Union (EMU). The 2008–09 economic crisis has shown that some euro area (EA)1 member states were unable to sufficiently stabilize their economies. This was especially true for some Southern European countries where limited access to private credit markets even led to destabilizing effects due to statutory tax increases and benefit cuts (see e.g. Bertola 2013). In the current policy debate in Europe, the view is widespread that the European currency union will not survive unless it is complemented by a ‘fiscal union’. Options discussed range from enforced budget rules to the development of an own ‘fiscal capacity’ for the EMU. In October 2012, the former President of the European Council, Herman van Rompuy, argued: ‘Strengthening discipline alone is … not sufficient. In the longer term, there is a need to explore the option to go beyond the current steps to strengthen economic governance by developing gradually a fiscal capacity for the EMU. Such a fiscal capacity could take several forms and various options would need to be explored’.2 Subsequently, ex-EU Commissioner 1 In the following we equivalently use ‘EA’, ‘EMU’ and ‘Eurozone’ to refer to the cur- rent 17 member states of the European currency union and thus, only to those EMU members who have already introduced the Euro. 2 ‘Towards...

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