Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/277347 
Authors: 
Year of Publication: 
2016
Citation: 
[Journal:] European Journal of Economics and Economic Policies: Intervention (EJEEP) [ISSN:] 2052-7772 [Volume:] 13 [Issue:] 1 [Year:] 2016 [Pages:] 39-56
Publisher: 
Edward Elgar Publishing, Cheltenham
Abstract: 
Notwithstanding the modified ECB practice that saved the day, the euro area is failing to restore economic prosperity. The problem is visibly political, yet an effective solution must be economically viable. This essay articulates the reason behind the prolonged deflationary bias of euro area policies by means of a simple ('T-shirt') model, where private spending depends on desired savings and sustainable indebtedness. This savings–debt constraint means that any policy that inhibits debt also inhibits financial savings, spending, and jobs. After providing a solution to the conundrum of the consequence of savings in a monetary economy, this essay makes a case for reclaiming the fiscal instrument. The EU Commission's belief that it is possible to create jobs without creating new debt underscores a serious conceptual fault and a delusion that the savings–debt constraint to spending can be ignored. As long as policy-makers defy the savings–debt constraint, the euro area will continue to live dangerously.
Subjects: 
eurozone crisis
savings and investment
financial savings
savings–debt constraint
private and public debt
JEL: 
E21
E42
E52
E62
H62
H63
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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