In What Form Will the Eurozone Emerge from the Crisis?

Abstract

The Eurozone is in the midst of a deep crisis. We argue that the attempts to control government deficits and debts using the Stability and Growth Pact have failed. Moreover, austerity policies are inducing downward spirals in terms of growth. Political leaders have promised deeper political, fiscal, and banking union. However, this will take many years to implement. We argue that in the meantime in order to save the euro, allowing default and temporary exit from the Eurozone is desirable as these policies are capable of initiating significant growth in the short run. This will allow Greece and possibly other countries that adopt them to bring down their unemployment, particularly youth unemployment, in a reasonable time frame.

Keywords: Eurozone, Asuterity Policies, default, temporary exit, Argentina, growth