The Euro and the Global Crises: Finding the Balance between Short Term Stabilization and Forward Looking Reforms

15 Pages Posted: 16 Jun 2012 Last revised: 24 Jul 2023

See all articles by Joshua Aizenman

Joshua Aizenman

University of Southern California - Department of Economics

Date Written: June 2012

Abstract

This paper analyzes reforms and adjustments in the context of the Euro and the global financial crises. Taking the perspective of the evolutionary approach to institutions, the formation of a new currency area is not unidirectional. The process leading to the euro is an example of a common upbeat and optimistic attitude to the formation of new institutions. Such a Panglossian attitude to policies may reflect built-in fiscal myopia, possibly both at the level of the principal [the policy maker] and of the agents [consumers and households]. Next, the paper reviews the evolution of institutions buffering the stability of unions in the aftermath of crises, where fiscal restraints and the allocation of significant bargaining clout to the Federal Center increase the stability of a union. The paper concludes with an overview of the challenges associated with finding the proper balance between financial integration and financial regulations.

Suggested Citation

Aizenman, Joshua, The Euro and the Global Crises: Finding the Balance between Short Term Stabilization and Forward Looking Reforms (June 2012). NBER Working Paper No. w18138, Available at SSRN: https://ssrn.com/abstract=2085126

Joshua Aizenman (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

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