Edited by Theodore Eisenberg and Giovanni B. Ramello
Chapter 14: The Eurozone crisis, the defective policy response and the need for institutional innovation
More than 50 years have elapsed since the creation of the European Community, then European Union (EU): the project was grand and it ensured economic progress, peace and prosperity. Almost 15 years have passed since the euro’s birth. In the first ten years (1999–2008) the monetary union guaranteed an overall macroeconomic stability, low inflation rates – also in countries previously affected by an inflation-prone behaviour – and calmness in financial markets: the interest rates were almost identical in the whole Euro area. However the bonus due to lower interest rates has not been used by all countries to stimulate – also through accompanying structural reforms – higher economic growth and/or to improve public account sustainability (in countries with high debt levels). The shock of the global financial crisis (2007–08) and global recession (2008–09) dramatically changed the situation. The initial impact on EU countries was similar to what occurred in the US and other advanced economies. However, more recently, the sovereign debt crisis (2010–13) has caused a ‘double-dip’ recession in many Eurozone countries, produced a long-lasting impact on real economies and triggered severe social and even political consequences.
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