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No. 699: Eurozone: The Untold Economics

John Hatgioannides , City University
Marika Karanassou , Queen Mary, University of London and IZA
Hector Sala , Universitat Autònoma de Barcelona and IZA

January 1, 2013

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Abstract

This paper dwells on the Eurozone woes and addresses the origins of the transition from a fictitious boom to a painful bust by unravelling (i) the supply-side structural imbalances that formed the core-periphery economic divide, and (ii) the necessity of the periphery’s sovereign debt to finance imports from the export-led core. Within our macroeconomic setup, we challenge the cliché that countries of the core have funded the sovereign debts of the periphery and demonstrate that the commonly held view that the periphery countries have lived beyond their means (due to wages growing beyond what is justified by productivity gains) is in stark contrast to the trajectories followed by the wage shares. We argue against the tyrannical neoliberal policies of austerianism and we propose the rebooting of central and private banking. We present a fresh vision for the future of the Eurozone that will halt the tearing of the social fabric of its member states.

J.E.L classification codes: E50, E62, E65, G01

Keywords:Eurozone crisis, Structural imbalances, Sovereign debt, Austerity, Neoliberal policies, Banking/credit system

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