THE EURO AREA CRISIS: A VIEW FORM THE NORTH

 

Seppo Honkapohja

Bank of Finland

 

Abstract

The paper provides an overview of the sovereign debt crisis. I first consider the build-up of the crisis. I then discuss policy choices when a financial crisis erupts and assess the adjustment processes in the crisis countries, including alternatives to policies of austerity. Finally I take up institutional improvements that can help in resolving the current crisis and avoiding a future one. These include the banking union and the strengthened Stability and Growth Pact and related institutional rules. Current high levels of public and private debt together with still weak bank balance sheets are a major unsolved problem.

 

Keywords: financial crisis, sovereign debt, European integration

JEL Classification codes: E62, E65, F36

 

Acknowledgements: I am grateful to Tuomas Saarenheimo, Juha Tarkka, Dimitris Malliaropoulos and participants in the conference for useful comments. Hanna Freystätter provided skilful research assistance and comments. The views expressed are my own and do not necessarily reflect those of the Bank of Finland.

 

Correspondence:

Seppo Honkapohja

Bank of Finland,

P.O. Box 160,

FI 00101 Helsinki, Finland

Tel. +358-40-7718954

e-mail: Seppo.honkapohja@bof.fi