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Modelling monetary and fiscal governance in the wake of the sovereign debt crisis in Europe

  • This paper analyzes different government debt relief programs in the European Monetary Union. I build a model and study different options ranging from debt relief to the European Stability Mechanism (ESM). The analysis reveals the following: First, patient countries repay debt, while impatient countries more likely consume and default. Second, without ESM loans, indebted countries default anyway. Third, if the probability to be an impatient government is high, then the supply of loans is constrained. In general, sustainable and unsustainable governments should be incentivized differently especially in a supranational monetary union. Finally, I develop policy recommendations for the ongoing debate in the Eurozone.

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Metadaten
Author of HS ReutlingenHerzog, Bodo
URN:urn:nbn:de:bsz:rt2-opus4-11148
DOI:https://doi.org/10.3390/economies4020009
ISSN:2227-7099
Erschienen in:Economies
Publisher:MDPI
Place of publication:Basel
Document Type:Journal article
Language:English
Publication year:2016
Tag:European Monetary Union; debt crisis; debt relief; european stability mechanism
Volume:4
Issue:2
Page Number:11
First Page:1
Last Page:11
Article Number:9
DDC classes:330 Wirtschaft
Open access?:Ja
Licence (German):License Logo  Creative Commons - CC BY - Namensnennung 4.0 International