Authors: Dorothea Schäfer, Alasdair Roberts, Peter Bofinger, Stefan Ried

Editorial: Will the Stress Tests for Banks Improve the Stability of Financial Markets?
by Dorothea Schäfer

Article: “An Ungovernable Anarchy”: The United States’ Response to Depression and Default, 1837-1848
by Alasdair Roberts

American commentators have criticized European leaders for failing to deal firmly and swiftly
with the eurozone’s sovereign debt crisis. These commentators forget the lessons of American
history. The United States experienced a similar crisis following the financial panic of 1837.
Eight states defaulted and political turmoil intensified, undermining stability in several states
and the federal system itself. The restoration of economic and political order was a prolonged
and painful process, as enraged voters confronted the costs of inaction and accepted new
constraints on democratic processes. Will the European crisis play out similarly?

Article: A New Framework for Fiscal Policy Consolidation in Europe
by Peter Bofinger, Stefan Ried

Current developments in Greece make clear that the rules of the European Stability and
Growth Pact (SGP) were neither strict enough nor enforced strictly enough. To deal with the
ongoing exit from the fi scal crisis and its related phenomena, we propose a new framework
for fi scal policy consolidation in Europe. The centrepiece is a European Consolidation Pact to
supplement the SGP which would supply loan guarantees in exchange for a fee and stricter
budget consolidation measures. The new framework also spells out the details of an orderly
government default.