Panic-driven austerity in the Eurozone and its implications

Paul De Grauwe, Yuemei Ji 21 February 2013

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Southern Eurozone countries have been forced to introduce severe austerity programs since 2011. Where did the forces that led these countries into austerity come from? Are these forces the result of deteriorating economic fundamentals that made austerity inevitable? Or could it be that the austerity dynamics were forced by fear and panic that erupted in the financial markets and then gripped policymakers. Furthermore, what are the implications of these severe austerity programs for the countries involved?

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Topics:  Financial markets Macroeconomic policy

Tags:  eurozone, financial panic, austerity

Why should we believe the market this time?

Paul De Grauwe 07 February 2009

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Spreads of sovereign debt within the eurozone have increased dramatically during the last few months. Figure 1 shows the evidence. The governments of Greece and Ireland now pay an interest rate on their debt that exceeds the German government bond rate by more than 200 basis points, while the governments of Spain, Portugal and Italy have to pay more than 100 basis points extra.

Figure 1.

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Topics:  International finance Macroeconomic policy

Tags:  eurozone, sovereign debt, spreads, government bonds, flight to safety, financial panic

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