Journal of Economic Perspectives: Vol. 26 No. 3 (Summer 2012)


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The European Sovereign Debt Crisis

Article Citation

Lane, Philip R. 2012. "The European Sovereign Debt Crisis." Journal of Economic Perspectives, 26(3): 49-68.

DOI: 10.1257/jep.26.3.49


The origin and propagation of the European sovereign debt crisis can be attributed to the flawed original design of the euro. In particular, there was an incomplete understanding of the fragility of a monetary union under crisis conditions, especially in the absence of banking union and other European-level buffer mechanisms. Moreover, the inherent messiness involved in proposing and implementing incremental multicountry crisis management responses on the fly has been an important destabilizing factor throughout the crisis. After diagnosing the situation, we consider reforms that might improve the resilience of the euro area to future fiscal shocks.

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Lane, Philip R. (Trinity College Dublin)

JEL Classifications

E62: Fiscal Policy
F34: International Lending and Debt Problems
F36: Financial Aspects of Economic Integration
H63: National Debt; Debt Management; Sovereign Debt


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