POLICYMAKING IN THE EUROZONE AND THE CORE VS PERIPHERY PROBLEM

• Published in: CESifo forum Vol. 12; no. 2; p. 12
• Main Author: Skaperdas, Stergios
• Format: Journal Article
• Language: English
• Published: München Institut für Wirtschaftsforschung (Ifo) 01.07.2011
• Subjects: Architects; Bailouts; Banking industry; Central banks; Currency; Debt restructuring; Deposit insurance; Economic crisis; Economic theory; Eurozone; International markets; Policy making; Sovereign debt; Supervision; Europe
• ISSN: 1615-245X; 2190-717X

In this article I provide a perspective on the different policies that are potentially available within the eurozone, with emphasis on the differences between 'core' and 'periphery'. In particular, I will argue the following: 1. The strategies followed and the existing institutions are not consistent with the long-term viability of a multi-country currency. 2. The periphery's problems have exhibited varied symptoms that could have been expected to test the eurozone during its first serious recession. 3. The Greek and Irish packages have favored the banking sector and creditors and imposed the highest costs on lower-income citizens in both countries. 4. One possible factor in the policies that have been followed is the absence of any serious bargaining on the part of the Greek and Irish governments, at a time that the game within the eurozone has become 'zero-sum' or even 'negative-sum'. 5. In the absence of much closer political integration or other long-term policies that recognize and attempt to remedy the difficulties of a multi-country currency, exit from the eurozone for some of the peripheral countries cannot and should not be ruled out. [PUB ABSTRACT]