16 Sep 2008

The twin shocks hitting the eurozone

Paul De Grauwe

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This CEPS Commentary explores the cause of the rapid and intense deterioration suffered by the eurozone business cycle since early 2007. It finds that the key explanation lies in the exchange rate of the euro and points a finger at the European Central Bank for abdicating its responsibility to intervene in the foreign exchange market and to oppose exchange rate developments that are out of touch with economic forces.

Paul De Grauwe is Professor of Economics at the University of Leuven and Associate Senior Fellow at CEPS.