31 May 2012

A self-inflicted crisis

Paul De Grauwe

0
Download Publication

2757 Downloads

This commentary observes that fear and panic are now the driving forces in the eurozone, splitting the area into two: pushing some into bad equilibria characterised by austerity and recession, and others into good equilibria allowing their governments to borrow at almost no cost. The responses adopted so far by the ECB and the European Commission reflect a fundamental misunderstanding of the crisis and fail to assuage the existential fears undermining confidence in the eurozone. The author outlines three essential steps to be taken to unify the eurozone.

Paul De Grauwe is Professor at the London School of Economics and Associate Senior Fellow at CEPS.