DEBT CRISIS  AND FISCAL FRAGMENTATION  OF EURO-ZONE

Victor Koziuk

Authors

Victor Koziuk TNEU

Keywords:

Euro-zone, national debt, debt crisis, fiscal fragmentation, fiscal rules.

Abstract

Based on panoramic view of the EMU fiscal fragmentation, it is shown that the divergence of the euro area could not be caused by inadequate principles of the Monetary Union. Prior to common currency transition the problem of fiscal fragmentation was disguised in a more stable global environment and confidence for the future policy of the ECB. The debt crisis in the EMU brought the problem of fragmentation out of the latent state, showing a clear division between the countries that have kept on competitiveness and whose economic growth has positive expectations, and the rest ones, which are characterized by the fact that their financial imbalances have been combined with the loss of competitiveness. Speculation against structural inflexibility tightened fiscal fragmentation. Fiscal rather than monetary reasons for the EMU divergence lie in a combination of incentives to reduce distortion of national debt reduction in the environment of global liquidity expansion and the institutional weakness of fiscal rules model of Stability and Growth Pact. Fiscal fragmentation has the signs of saving for a long time, threatening to enhance sensitivity of the EMU macroinancial stability to the economy policies of individual countries. Fiscal fragmentation of the euro area is incompatible with the prospects of common currency as a reserve one.

References

Krugman P. Currency Regimes, Capital Flows, and Crises // Paper (Mundell-Fleming Lecture) Presented at the 14th Jacques Polak Annual Research Conference Hosted by the IMF, Wash. (D. C.), Nov. 7-8, 2013. - P. 1-35.

Obstfeld M., Peri G. Regional Non-Adjustment and Fiscal Policy // Economic Policy. - 1998. - № 26. - Р. 205-259.

Posen A. The Euro at Five: Ready for a Global Role? [Електронний ресурс] // Institute for International Economics Conference Paper. - 2005. - Режим доступу : www.iie.com.

Pisani-Ferry J., Posen A. The Euro at Ten: The Next Global Currency? [Електронний ресурс] // Institute for International Economics Conference Paper. -2009. - Режим доступу : www.iie.com.

The Euro at Ten: Performance and Challenges for the Next Decade. -Goldman Sachs European Economic Group. 2008. - 141 p.

Mongelli F. The Transformational Impact Of EMU and the Global Financial Crisis // Center for European Policy Studies Policy Brief. - 2010. - № 228. - 9 р.

Smaghi Bini L. The Financial and Fiscal Crisis: A Euro Area Perspective [Електронний ресурс] // ECB Speeches. - 2010. - Режим доступу : www.ecb.int.

Hume M., Sentence A. The Global Credit Boom: Challenges for Macroeconomics and Policy // External MPC Unit Discussion Paper. - 2009. -№ 27. - Р. 1-60.

Lane Ph. International Financial Integration and the External Positions of Euro Area Countries // OECD Economics Department Working Paper. - 2010. -№ 830. - Р. 1-16.

Barnes S., Lawson J., Radziwill A. Current Account Imbalances in the Euro Area: A Comparative Perspective // OECD Economics Department Working Paper. - 2010. - № 826. - Р. 1-18.

Barbosa J. R., Alves R. H. Divergent Competitivness in the Eurozone and the Optimum Currency Area Theory // Faculdade de Economia Universidade do Porto Working Papers. - 2011. - № 436. - Р. 1-32.

Davlas Z., Pisani-Ferry J., Sapir A. A Comprehensive Approach to the EuroArea Debt Crisis // Bruegel Policy Brief. - 2011. - Feb. - № 2. - Р. 1-8.

Alberola E., Molina L., Rio del P. Boom, Imbalances and Bust in Europe. Lessons for Shaping a More Stable Monetary Union // Banco de Espana. -2011. - P. 1-19.

Козюк В. Теоретичний вимір макрофінансових ризиків дивергенції євро зони // Економічна теорія. - 2011. - № 3. - С. 59-72.

Козюк В. В. Еволюція інституціональної моделі фіскальних правил ЄВС // Журнал європейської економіки. - 2013. - Т. 12, № 2. - С. 131-164.

Козюк В. В. Фіскальний вимір теорії оптимальних валютних зон в світлі дивергенції ЄВС // Економічна теорія. - 2014. - № 3. - С. 82-98.

Completing the Euro. A Road Map Towards Fiscal Union in Europe. Report of the «Tommaso Padoa-Schioppa Group». - Notre Europe Studies and Reports. - 2013. - № 92. - 68 р.

Козюк В. В. Теорія оптимальних валютних зон у світлі глобальної фінансової кризи і ризиків дивергенції ЄВС // Економічна теорія. - 2012. - № 4. -С.56-71.

Pisani-Ferry J. The Known Unknowns and Unknown Unknowns of EMU //

Bruegel Policy Contribution. - 2012/18. - P. 1-10.

Davras Z. The Euro Crisis: Ten Roots, But Fewer Solutions // Bruegel Policy

Contribution. - 2012/18. - P. 1-14.

Buiter W., Corsetti G., Roubini N. Maastricht’s Fiscal Rules // Economic Policy. - 1993. - Vol. 8. - № 1. - Р. 60-75.

Mongelli F. «New» Views on the Optimum Currency Area Theoty: What Is EMU Telling Us! // ECB Working Paper. - 2002. - № 138. - Р. 5-51.

Dorrucci E., Firpo S. European Integration: What Lessons for Other Regions? The Case of Latin America // ECB Working Paper. - 2002. - № 185. - Р. 5-50.

de Bandt O., Mongelli F. Convergence of Fiscal Policies in the Euro Area // ECB Working Paper. - 2000. - № 20. - Р. 5-28.

Mongelli F. P. The Mutating Euro Area Crisis. Is the Balance Between «Sceptics» and «Advocates» Shifting? // ECB Occasional Paper. - 2013. -№ 144. - Р. 1-41.

Rother Ph., Schuknecht L., Starl J. The Benefits of Fiscal Consolidation in Uncharted Waters // ECB Working Paper. - 2010. - № 121. - Р. 1-38.

De Santis R. The Euro Area Sovereign Debt Crisis: Save Havens, Credit Rating Agencies and the Spread of the Fever from Greece, Ireland and Portugal // ECB Working Paper. - 2012. - № 1419. - Р. 1-61.