External imbalances and fiscal fragility in the Euro area

Pietro Alessandrini, Michele Fratianni, Andrew Hughes Hallett, Andrea F. Presbitero

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    31 Citations (Scopus)


    This paper presents two views of the European sovereign debt crisis. The first is that countries in the South of the Eurozone were fiscally irresponsible and failed to implement pro-competitive supply side policies. The second view holds that the crisis reflects a deep divide between the external surpluses of the North and external deficits of the South. Basic stylized facts cast doubt on the explanation based on the first thesis alone. A relatively simple model shows how poor fundamentals can create a debt problem independently of fiscal responsibility. The empirical analysis of the determinants of government bond yield spreads relative to Germany suggests that both views in fact provide useful insights into the roots of the current sovereign crisis. However, differences in growth and competitiveness and capital flows between North and South have assumed a much more dominant role since the onset of the global crisis.
    Original languageEnglish
    Pages (from-to)3-34
    Number of pages32
    JournalOpen Economies Review
    Issue number1
    Early online date25 Jan 2014
    Publication statusPublished - Feb 2014


    • Sovereign yield spreads
    • External imbalances
    • Adjustment burden
    • Monetary union


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