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Friday, November 20, 2015

'Rebooting the Eurozone: Step 1 – Agreeing a Crisis Narrative'

Richard Baldwin at Vox EU:

Rebooting the Eurozone: Step 1 – Agreeing a Crisis narrative: The Eurozone needs fixing, but it is impossible to agree upon the steps to be taken without agreement on what went wrong. This column introduces a new CEPR Policy Insight that presents a consensus-narrative of the causes of the EZ Crisis. It was authored by a dozen leading economists from across the spectrum. The consensus narrative is supported by a long and growing list of economists. 


The Eurozone Crisis broke out in May 2010; it is a long way from finished. Although some positive signs have emerged recently, EZ growth and unemployment are miserable and expected to remain miserable for years.

  • A large slice of Europe’s youth have been or will be jobless during the critical, formative years of their working lives;
  • The economic malaise is feeding extremist views and nationalistic tendencies just when Europe needs to pull together to deal with challenges ranging from the migration crush to possible new financial shocks.

Worse yet, many of the fragilities and imbalances that primed the monetary union for this crisis are still present.

  • Many of Europe’s banks face problems of non-performing loans;
  • Many are still heavily invested in their own nation’s public debt – a tie that means problems with banks threaten the solvency of the government and vice versa;
  • Borrowers across the Continent are vulnerable to the inevitable normalisation of interest rates that have been near-zero for years.

As a first step to finding a broad consensus on what needs to be done to fix the Eurozone, we have written what we consider to be a consensus narrative of the Eurozone Crisis. It is published today as CEPR Policy Insight 85, which can be downloaded for free from:

Rebooting the Eurozone: Step 1 – agreeing a crisis narrative

Although the authors hark from diverse backgrounds, we found it surprisingly easy to agree upon a narrative and a list of the main causes of the EZ Crisis. We say “surprisingly” since EZ policymakers remain attached to very diverse narratives of the Eurozone crisis.

The need for a consensus narrative

Formulating a consensus on the causes of the EZ Crisis is essential. When terrible things happen, the natural tendency is to fix the immediate damage and take steps to avoid similar problems in the future. It is impossible to agree upon the steps to be taken without agreement on what went wrong. Absent such agreement, half-measures and messy compromises are the typical outcome. But this will not be good enough to put the EZ Crisis behind us and restore growth.

This is why formulating a consensus narrative of the EZ Crisis matters so much. Eurozone decision-makers will never agree upon the changes needed to prevent future crises unless they agree upon the basic facts that explain how the Crisis got so bad and lasted so long.

The following leading economists have agreed to support the consensus-narrative. If you are an economist and would like to support the consensus-narrative, please email support.rebooting@cepr.org stating your support and attaching a CV showing you are an economist (business, media, academics, think tanks, etc.).

Supporters of the Consensus Narrative on the Eurozone Crisis (in order of replying)

Silvana Tenreyro, LSE, Sir Charles Bean, LSE (Ex-Deputy Governor Bank of England), Philippe Bacchetta, University of Lausanne, Jorge Braga de Macedo, Universidade Nova de Lisboa, Lars E O Svensson, Stockholm Univeristy (ex-Deputy Governor of Sveriges Riksbank), Andrew Rose, UC Berkeley, László Halpern, Hungarian Academy of Sciences, Refet S. Gürkaynak, Bilkent University, Giorgio E Primiceri, Northwestern University, Peter Bofinger, Universität Wurzburg, Jürgen von Hagen, Universität Bonn, Tryphon Kollintzas, Athens University of Economics and Business, Patrick Honohan, Trinity College Dublin (Ex-Governor of Central Bank of Ireland), Charles A Goodhart, LSE, David Vines, University of Oxford, Fabrizio Coricelli, University of Paris I, Stephanie Schmitt-Grohé, Columbia University, Pierre-Olivier Gourinchas, UC Berkeley, Evi Pappa, EUI, Cédric Tille, The Graduate Institute, Geneva (Member of the Swiss National Bank Council),

    Posted by on Friday, November 20, 2015 at 12:15 AM in Economics | Permalink  Comments (38)


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