Article in Journal
Making the Eurozone Function Again: A Solution for the European Debt Problem Is Hard But Not Impossible
Vesa Kanniainen
CESifo, Munich, 2023
EconPol Forum 24 (4), 34-37
CESifo, Munich, 2023
EconPol Forum 24 (4), 34-37
- The Eurozone is stuck in an inefficient equilibrium with high public debt and no policy discipline. The no-bailout rule is not credible
- This article proposes a radical two-stage solution for the restructuring of excessive public debt and to eliminate the incentives for undue public borrowing in the future
- “Restructuring” would amount to a Euro-wide collective retirement of excess debts. Calculations are presented for two alternative procedures
- Borrowing discipline would be restored by the introduction of a tax on subsequent borrowing if it violates a critical level, say a 100 percent debt-to-GDP ratio. This is called a “Tobin tax”
- The solution suggested, which could be compared with the US state-level rules of a balanced budget requirement, introduces radical policy discipline instead of relying on market discipline, which tends to come too late.
Included in
EconPol Forum 04/2023: Reform of the EU Economic Governance – Why and How?
CESifo, Munich, 2023