Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128251
Authors: 
Dabrowski, Marek
Year of Publication: 
2012
Series/Report no.: 
CASE Network Studies & Analyses 443
Abstract: 
Unlike the crisis years of 2007-2009 (when the insolvency of large banks was a major problem), the current round of the global financial crisis has fiscal origins. Almost all developed countries suffer from an excessive public debt burden that has been built up over the last two decades or more. The financial crisis caused a further deterioration of government accounts as a result of ill-tailored countercyclical fiscal response and, in some cases, a costly financial sector rescue. All excessively indebted countries must conduct fiscal adjustment, even if this involves economic and political costs in terms of lower output and higher unemployment. Central banks can reduce these costs through accommodative monetary policies but without compromising their anti-inflationary missions and institutional independence. The ECB is additionally constrained by its institutional status which is based on a delicate cross-country political consensus. Excessive ECB involvement in quasi-fiscal rescue operations can undermine this consensus and lead to a disintegration of the Eurozone. There are also strong arguments in favor of strengthening fiscal and banking integration within the EU, especially the fiscal discipline mechanism at national levels, and building the EU rescue capacity in respect to sovereigns and banks based on strong policy conditionality.
Subjects: 
Financial crisis
Sovereign debt crisis
Fiscal adjustment
European Union
Economic and Monetary Union
Eurozone
Maastricht Treaty
European Central Bank
Euro
Fiscal union
JEL: 
E58
E62
E63
F33
F34
F36
G01
H62
H63
ISBN: 
978-83-7178-569-6
Document Type: 
Research Report

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