DRAWING LESSONS FROM THE CRISIS - A NEW FRAMEWORK FOR STABILITY AND GROWTH
Theodoros S. Papaspyrou
Bank of Greece
This paper, drawing on the lessons from the sovereign debt crisis, tries to give answers to some key questions: Was the strategy and specific actions to cope with the crisis appropriate? Was the priority given to preserving financial stability justified? Are stability and growth objectives possible in EMU? What is the scope for national economic policy in the new policy framework? It emerges from the analysis that, after some initial weaknesses in policy action, decisive initiatives by EU authorities, supported by significant progress to strengthen further economic and financial governance and reduce macroeconomic imbalances succeeded in preserving the stability and integrity of the euro area. While the priority given by the EU policy action to financial stability was fully justified, it is also clear that robust economic growth is essential for durable financial stability and overall welfare. Policies enhancing both stability and growth are possible in EMU and some of them have started being implemented while others are at an advanced stage of development. There is ample scope for national economic policies which, if well-designed and properly implemented, will enhance the growth potential of member countries. However, legacy problems such as the excessive government debt burden in some countries must be resolved.
Keywords: Economic governance in EMU, the sovereign debt crisis, adjustment in a monetary union, European economic and financial integration, financial stability and growth, national economic policy in EMU
JEL classification: E42; E44; E52; E61; F32; F33; F41.
Acknowledgments: I would like to thank Heather Gibson for her helpful comments. The views expressed in this paper are those of the author and do not necessarily reflect those of the Bank of Greece.
Theodoros S. Papaspyrou.
Economic Analysis and Research Department
Bank of Greece
21, E.Venizelos Avenue,
Tel: +30210-320 3611