Research Topics

Proposals for the Eurozone Crisis

After reviewing the main determinants of the current eurozone crisis, this paper discusses the feasibility of introducing fiscal currencies as a way to restore fiscal space in peripheral countries, like Greece, that have so far adopted austerity measures in order to abide by their commitments to eurozone institutions and the International Monetary Fund. We show that the introduction of fiscal currencies would speed up the recovery, without violating the rules of eurozone treaties. At the same time, these processes could help transition the euro from its current status as the single currency to the status of “common clearing currency,” along the lines proposed by John Maynard Keynes at Bretton Woods as a system of international monetary payments. Eurozone countries could therefore move from “Plan B,” aimed at addressing member-state domestic problems, to a “Plan A” for a better European monetary system.

A Post-Keynesian Interpretation of the Spanish Crisis

The Spanish crisis is generally portrayed as resulting from excessive spending by households, associated with a housing bubble and/or excessive welfare spending beyond the economic possibilities of the country. We put forward a different hypothesis. We argue that the Spanish crisis resulted, in the main, from a widening deficit position in the nonfinancial corporate sector—the most important explanatory factor behind the country’s rising external imbalance—and a declining trend in profitability under a regime of financial liberalization and loose and unregulated lending practices. This paper argues that the central cause of the crisis is related to the nonfinancial corporate sector’s increasingly fragile financial position, which originated from the financial convergence that followed adoption of the euro.

A Proposal to Repair Half of a Flawed Design

The flaws of the Maastrict Treaty are a frequent object of commentary but, as yet, Europe remains unable—or, perhaps more accurately, unwilling—to address these flaws. The European project will remain unfinished and the ability of the European Central Bank to implement effective monetary policies will continue to be hobbled. As Mario Tonveronachi observes in this public policy brief, Europe has a currency union, but this does not mean that Europe has achieved a single financial market, an essential element for a functioning union. He reminds us that a single European market requires pricing in relation to common risk-free assets rather than in relation to a collection of individual idiosyncratic sovereign rates. And financial operators must have access to the same risk-free assets for trading and liquidity operations. The euro provides neither of these functions, and thus, while there has been a measure of convergence, a single financial market, and the financial integration it represents, remains unachieved.