Europe and the euro integration crisis and policies

Europe and the Euro Enrico Marelli • Marcello Signorelli Europe and the Euro Integration, Crisis and Policies Foreword by Paul De Grauwe Enrico Marelli University of Brescia Brescia, Italy Marcello Signorelli University of Perugia Perugia, Italy ISBN 978-3-319-45728-4 ISBN 978-3-319-45729-1 (eBook) DOI 10.1007/978-3-319-45729-1 Library of Congress Control Number: 2016950852 © The Editor(s) (if applicable) and The Author(s) 2017 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made Cover illustration: Pattern adapted from an Indian cotton print produced in the 19th century Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland To European people and future generations A unified Europe has a meaning for civilization that is deeper even than security and peace Europe was the source of the cultural achievements from which we all benefit [ ] WE ARE NOT UNITING STATES, WE ARE UNITING HUMAN BEINGS (Jean Monnet, ‘The United States of Europe’, Washington, 30 April 1952) FOREWORD The sovereign debt crisis that erupted in 2010 exposed the design failures of the Eurozone These have long been known Right from the start of the Eurozone many economists warned that these design failures would lead to problems and conflicts within the currency union, and that the Eurozone in the end would fall apart if these failures were not corrected ‘Visionary’ European politicians brushed aside the warnings from economists in the 1990s that the euro is based on a flawed construction Nothing would stop their great monetary dream, certainly not the objections of down-to-earth economists What are these design failures? THE EUROZONE IS NOT AN OPTIMAL CURRENCY AREA The European monetary union (EMU) lacked a mechanism that can stop divergent economic developments between countries Some countries experienced a boom, others a recession Some countries improved their competitiveness, others experience a worsening These divergent developments led to large imbalances, which crystallised in the fact that some countries built up external deficits and other external surpluses When these imbalances had to be redressed, it appeared that the mechanisms to redress the imbalances in the Eurozone (internal devaluations) are very costly in terms of growth and employment, leading to social and political upheavals Countries that have their own currency and that are faced with such imbalances can devalue or revalue their currencies In a monetary union, countries facing external deficits ix x FOREWORD are forced into intense expenditure reducing policies that inevitably lead to rising unemployment This problem has been recognised by the economists that pioneered the theory of optimal currency areas (Mundell, 1961; McKinnon, 1963; Kenen, 1969) Later important contributions include Bayoumi and Eichengreen (1993) and Krugman (1993) The standard response derived from the theory of optimal currency areas is that member countries of a monetary union should structural reforms so as to make their labour and product markets more flexible By increasing flexibility through structural reforms the costs of adjustments to asymmetric shocks can be reduced and the Eurozone can become an optimal currency area This has been a very influential idea and has led Eurozone countries into programmes of structural reforms It is often forgotten that although the theoretical arguments in favour of flexibility are strong, the fine print of flexibility is often harsh It implies wage cuts, less unemployment benefits, lower minimum wages, easier firing Many people hit by structural reforms, resist and turn to parties that promise another way to deal with the problem, including an exit from the Eurozone From an economic point of view flexibility is the solution From a social and political point of view flexibility is the problem There is a way to reduce the costs of the adjustment to imbalances in a monetary union if this adjustment can be made to operate symmetrically Thus, if the inevitable austerity by the deficit countries can be compensated by fiscal stimulus in the surplus countries, the negative aggregate demand effects in the former can be compensated by positive demand effects in the latter Such a symmetric adjustment mechanism did not operate in the Eurozone after 2010, when the large external imbalances in the Eurozone were exposed The deficit countries were forced into austerity while the surplus countries tried to balance their budgets The result has been to create a deflationary bias in the Eurozone Contrary to what was promised, the EMU has failed dismally in delivering on these promises, that is, that EMU would lead to more economic growth and employment The opposite has occurred Member countries of the Eurozone have on average experienced less growth and more unemployment than the EU countries that decided to stay out of the Eurozone Such an outcome, if maintained, undermines the social consensus in favour of a monetary union FOREWORD FRAGILITY OF THE SOVEREIGN IN THE xi EUROZONE When the Eurozone was started, a fundamental stabilising force that existed at the level of the member states was taken away from these countries This is the lender of last resort function of the central bank Suddenly, member countries of the monetary union had to issue debt in a currency they had no control over As a result, the governments of these countries could no longer guarantee that the cash would always be available to roll over the government debt Prior to entry in the monetary union, these countries could, like all stand-alone countries, issue debt in their own currencies thereby giving an implicit guarantee that the cash would always be there to pay out bondholders at maturity The reason is that as stand-alone countries they had the power to force the central bank to provide liquidity in times of crisis What was not understood when the Eurozone was designed is that this lack of guarantee provided by Eurozone governments in turn could trigger self-fulfilling liquidity crises (a sudden stop) that would degenerate into solvency problems This is exactly what happened in countries like Ireland, Spain and Portugal.1 When investors lost confidence in these countries, they massively sold the government bonds of these countries, pushing interest rates to unsustainably high levels In addition, the euros obtained from these sales were invested in ‘safe countries’ like Germany As a result, there was a massive outflow of liquidity from the problem countries, making it impossible for the governments of these countries to fund the rollover of their debt at reasonable interest rate This liquidity crisis in turn triggered another important phenomenon It forced countries to switch-off the automatic stabilisers in the budget The governments of the problem countries had to scramble for cash and were forced into quick austerity programmes, by cutting spending and raising taxes A deep recession was the result The recession in turn reduced government revenues even further, forcing these countries to intensify the austerity programmes Under pressure from the financial markets and the creditor nations, fiscal policies became procyclical pushing countries further into a deflationary cycle As a result, what started as a liquidity crisis in a self-fulfilling way degenerated into a solvency crisis The Eurozone crisis that emerged after 2010 was the result of a combination of two design failures First, booms and busts continued to occur at the national level, leading to large external imbalances The lack of a smooth mechanism to correct for these imbalances created large economic xii FOREWORD and social costs Second, the stripping away of the lender of last-resort support of the member state countries allowed liquidity crises to emerge when the booms turned into busts These liquidity crises then forced countries to eliminate another stabilising feature that had emerged after the Great Depression, that is, the automatic stabilisers in the government budgets As a result, some countries were forced into bad equilibria As economists, we should think harder of what happens to political systems when countries are forced into bad equilibria As we have seen, in many countries where this happened, the political systems were badly shaken and extreme parties either increased in importance or came to power In several of these countries, the newly emerging political parties exhibit an open hostility to the monetary union and promise a better future outside the Eurozone This book of Enrico Marelli and Marcello Signorelli comes at the right time We now know more or less what the nature of the Eurozone crisis is And we can start thinking about the ways to go forward to make the Eurozone sustainable in the long run Enrico Marelli and Marcello Signorelli provide an excellent analysis of the causes of the Eurozone crisis and of the strategies that we will have to follow to ensure the survival of the euro London School of Economics, UK Paul De Grauwe NOTE Greece does not fit this diagnosis Greece was clearly insolvent before the crisis started, but this was hidden to the outside world by a fraudulent policy of the Greek government of hiding the true nature of the Greek economic situation (see De Grauwe, 2011) REFERENCES 167 De Grauwe, P., & Ji, Y (2016) How to reboot the Eurozone and ensure its longterm survival In R Baldwin & F Giavazzi (Eds.) 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129 Bail-out banks, 63, 64, 80, 83, 117, 129 states (sovereign debt), 60, 61 Balance of payments, 82, 90 See also Current account Balassa, 5, 50 Balassa-Samuelson effect, 50 Baldwin, 42n17, 71, 111n20, 134n7, 142, 148, 150, 154 Banking union, 57n7, 127–130, 136n28, 142, 144, 154, 160n38 Barro, 28, 47 Beker, 109n2 Belke, 160n38 Bernanke, 49, 109n4 Blanchard, 76n20, 142 Bonds German bund, 26, 46 See also Public Debt Bretton Woods, 2, 16–18 Brexit, 3, 13n5, 115, 127, 137n36, 140, 153, 156, 158n11, 161n40 Budget centralized, 22 See also EU, budget; Fiscal transfers Buiter, 41n5, 147 Bundesbank, 45–56, 96, 111n28, 160n34 Business cycle sensitivity, 34, 149 similarity, 27, 28, 31, 35, 41n18 synchronization, 25, 43n26 Buti, 25, 26, 43n24 © The Author(s) 2017 E Marelli, M Signorelli, Europe and the Euro, DOI 10.1007/978-3-319-45729-1 175 176 INDEX C Capital union, 127, 130, 144 Central banks, 2, 14n8, 16–19, 45–56, 60, 74n9, 87–89, 91, 114, 120–124, 128, 136n22, 136n25 balance sheets, 83, 88, 122, 124, 126, 135n19 See also European Central Bank (ECB); Federal Reserve (FED) Cohesion Fund, 7, 19, 149 Collateral, 51, 61, 120, 121, 134n8 Common agricultural policy (CAP), 2, 17 Common Market, Competition policy, 2, 4–6, 19 Competitiveness, 7, 18, 22, 27, 28, 41n7, 42n16, 50, 56, 74, 75n13, 79, 90, 93, 96, 111n20, 131, 140, 141, 143, 144, 148, 154 Construction, 6, 24, 26, 27, 50, 83, 93, 96, 127, 139, 140, 145, 147, 148, 159n23 Consumption, 50, 71, 81, 82, 84, 86, 90, 96, 98, 110n8, 137n35, 141, 143 Contagion, 60, 61, 91–94, 111n21, 114, 129, 150, 160n38 Convergence beta, 28, 29, 30, 41n22 extended, 29, 31 institutional, 24–28, 41n12 nominal, 20, 24–28, 41n5, 41n12, 43n24 real, 24–39, 40n12, 42n24, 138, 148, 149 sigma, 28 Coordinated macroeonomic policies, 19, 48, 68, 142 Corsetti, 160n33 Credit crunch, 84, 123, 126, 127 Crisis management, 73, 118–120, 149 Current account, 28, 41n17, 50, 56, 93, 134n7, 141, 142, 148, 157n6 See also Balance of payments Customs union, 2, 4–6, 17 D Dabrowski, 136n31 Decressin, 34 Deepening, 1–4, 14n7, 25, 154, 161n42 Deflation, 20, 22, 49, 52, 53, 69, 71, 86, 101, 122, 124–127, 140–141, 157n4, 158n15 De Grauwe, 13n5, 20, 23, 34, 40n5, 48, 111n27, 135n15, 142, 148, 149, 155, 156 De Laroisière group, 136n26 Delors, 19, 119, 146, 148, 161n44 report, 19 Deregulation, 16, 81, 90, 141 Draghi, 56, 57n2, 77n25, 114, 120, 123, 127, 150 E Economic and monetary union (EMU), 4, 14n7, 15–39, 39n4, 40n11, 45, 57n10, 60, 61, 69, 92, 128, 139–156 A “genuine” EMU, 128, 153, 154, 156 Economic growth, 2, 4, 5, 20, 21, 25–27, 27, 47–50, 54, 56, 62, 66, 68–71, 73, 75n12, 80, 119, 123, 126, 127, 130, 131, 132, 136n30, 139–143, 157n8 Economic union, 15–39, 153–156 Effective demand, 94–103, 110n8 See also Aggregate demand INDEX Eichengreen, 21, 109n1, 110n9, 159n27, 160n37 Employment, 4, 7, 22, 26, 49, 86, 102, 104–109, 119, 131–133, 136n34, 140, 141, 143, 144, 146, 160n36 employment rates, 26, 106, 107, 132, 136n34, 140 Euro exchange rate, 16–22, 25–26, 28, 40n2, 42n20, 46, 50, 56, 126 introduction, 39, 56, 61, 62, 92, 129 survival, 70, 142, 149, 150, 159n27 Euro area, 20, 24, 28, 29, 31, 39, 42n22, 51, 52, 54, 57n7, 65, 66, 111n20, 117, 118, 124, 126, 130, 134n4, 141, 142, 144, 149, 150, 152, 154, 161n40 See also Eurozone Eurobonds project bonds, 119 stability bonds, 155 Eurogroup, 14n8, 152, 153 Europe 2020, 4, 14n6, 26, 70, 106, 130–134, 149 European Central Bank (ECB) accountability, 48 conservatism, 46–49 executive board, 45, 46 governance, 45–46 Governing Council, 46, 47, 52 independence, 46–48 instruments, 46, 51–53, 55, 57n7, 122, 125 Main Refinancing Operations (MROs), 51–52, 120 objectives, 47–49, 51, 52, 53, 129 strategies, 51–52 unconventional measures, 55, 89, 120–124 177 European Coal and Steel Community (ECSC), European Deposit Insurance Scheme, 130, 144 European Economic Area (EEA), 13n3 European Economic Community (EEC), 2, 6, 24 European Financial Stability Facility (EFSF), 14n8, 114, 116, 119, 134n5, 149 European Fund for Strategic Investment (EFSI), 146 European Investment Bank (EIB), 14n8, 121, 125, 146, 147 European Monetary System crisis (1992–93), 19 European currency unit (ECU), 40n2 floating interval, 18, 19 realignments, 17, 18 European Monetary Union, 15–39, 41n4, 41n11, 45, 57n10, 60, 61, 69, 92, 127, 140, 148–150, 154–156 European Parliament, 4, 48, 152, 153 European Regional Development Fund (ERDF), European Semester, 69, 132 European Social Fund (ESF), European Stability Mechanism (ESM), 114, 116, 117, 119, 123, 125, 128, 149, 152, 155, 158n14 European Supervision Authorities (ESAs), 128 European System of Central Banks (ESCB), 45, 46, 49 European Systemic Risk Board (ESRB), 128 European unemployment insurance system (proposal), xv 178 INDEX European Union (EU) budget, 2, 6–9, 13n3, 60, 133, 134, 148, 152 commission (EC), 21, 25, 27, 65, 68, 73, 75n13, 76n24, 102, 112n32, 133, 144, 150, 153, 154 council, 14n8, 17, 18, 46, 69, 114, 124, 136n26 governance, 5, 59–74, 148–153 parliament, 4, 48, 128, 152–154 treaty, 2, 14n7, 116 Eurozone (or euro area) budget (proposal), 152 core, 41n13, 43n26, 71, 115 periphery, 68, 115 Exports, 6, 11, 21, 22, 26, 35, 82, 86, 90, 97, 97, 141, 143 F Fatàs, 34 Federal Reserve (FED), 45, 71, 83, 120 Finance Minister of Eurozone (proposal), 151, 152 Financial crisis, 52, 55, 56, 61, 63, 71, 80, 82–84, 86, 90, 92, 102, 109n1, 116, 119, 120, 128, 148, 155 Financial liberalizations, 79–84, 109n1 Fiscal Compact, 14n6, 23, 27, 68–70, 111n30, 118, 119, 148, 151 Fiscal policy fiscal capacity, 152 fiscal consolidation, 70, 76n20 fiscal multipliers, 72, 73, 76n20 fiscal rules, 119 fiscal stimuli packages, 64 fiscal transfers, 148 fiscal union (proposal), 154, 155 Fitoussi, 81 Five Presidents’ Report, 154 Forward guidance, 123 Founding fathers, 156 France, 2, 10, 12, 41n13, 43n26, 43n33, 46, 62–65, 68, 88, 89, 96, 106, 110n16, 116, 117, 143, 160n34 Frankel, 22, 160n33 Friedman, 17, 46, 47, 136n23, 147 G G-20, 80, 90, 110n17 General Agreement on Tariffs and Trade (GATT), 2, 16 Germany, 2, 10, 12, 18, 19, 25, 28, 40n3, 41n4, 41n13, 42n17, 43n26, 43n28, 43n33, 46, 48, 63, 65–67, 71, 74n2, 76n17, 82, 86, 88–89, 96, 104, 106, 110n16, 114, 116, 117, 135n16, 136n32, 137n38, 141–143, 146, 151, 159n24, 159n28, 160n32 Giavazzi, 13n2, 42n17, 71, 111n20, 134n7, 142, 148, 150, 154 Global imbalances, 79–84, 90 Globalization, 5, 9–10, 16 Goodhart, 136n28, 159n26 Government budget, 75n14 cyclically adjusted, 75n14 Government debt service, 74, 94, 146 See also Bail-out Government deficit, 60, 66, 90, 91, 141 Government expenditures, 64, 75n12 Government revenues, 6, 75n12, 155 Great Moderation, 80–82 Great Recession, 24, 26, 31, 39, 54, 57n9, 63–65, 71, 72, 84–86, 90–92, 94, 104, 122, 125 INDEX Greece, 2, 7, 20, 26, 27, 31, 35, 40n6, 41n20, 43n33, 50, 65, 67, 68, 70, 76n18, 86, 91, 92, 96, 102, 104, 106, 108, 110n19, 111n24, 111n28, 112n32, 114–116, 118, 123, 143, 150 Gros, D., 150, 160n38 H Housing bubble, 26, 83, 88 I Inflation core, 19, 53, 126 dispersion, 50 harmonized consumer price index (HCPI), 49 inflation target, 49–50, 51, 53, 124, 125 perceived, 50 Innovation, 4, 7, 14n6, 69, 81, 109n8, 131, 132, 141, 143, 144, 146, 152, 158n16 Integration, 1–4, 5, 7, 9, 13n1, 13n2, 19, 24–26, 28, 35, 39, 41n9, 44n33, 80, 93, 96, 127–129, 139–161 Interest expenditure, 42n19, 66, 94, 151 Interest rates nominal, 20, 26, 41n11, 49, 50, 72, 75n10, 158n15 nominal negative rates, 158n15 official (see also European Central Bank) real, 26, 47, 50, 91, 111n23 zero-lower bound, 122 Internal devaluations, 74, 96, 142, 143 International Monetary Fund (IMF), 2, 16, 72, 80, 90, 141 179 Investments plan (proposed for Europe), 119, 147, 150 private, 71, 117, 123, 144, 145, 147 public, 7, 63, 73–74, 96, 101, 115, 143–147, 155–156, 158n17, 159n19 See also Juncker plan Ireland, 2, 26, 35, 43n27, 43n30, 50, 65–68, 70, 83, 86, 88, 93, 94, 96, 102, 106, 111n21, 111n28, 114, 116, 118, 123, 134n5, 143 Italy, 2, 7, 10, 12, 18, 27, 28, 31, 40n3, 43n33, 46, 61, 66–68, 74n1, 74n2, 86, 88, 89, 93, 94, 96, 102, 104, 106, 108, 110n15, 110n16, 111n21, 114, 117, 122, 123, 126, 135n16, 143, 159n28 J Japan, 13, 66, 74n7, 74n9, 86, 89, 110n16, 120, 122 Juncker plan, 74, 75n16, 115, 143–147 K Kenen, 21, 27 Keynesian theories, 48, 51 Krugman, 16, 21, 25, 41n10, 111n27 L Labour, 22, 25, 27, 28, 42n14, 42n15, 42n18, 47, 56, 59, 74, 76n23, 80, 86, 102, 104, 106, 109, 112n33, 130–133, 136n33, 137n38, 140–141, 143, 148, 153 Lehman Brothers, 84, 120 Lisbon Agenda, 4, 26, 106, 130–134, 149 Lisbon Treaty, 4, 14n8 180 INDEX Long Term Refinancing Operations (LTROs), 123–124 See also Targeted Long Term Refinancing Operations (T-LTROs) M Maastricht Treaty, 3, 4, 7, 18–20, 24, 25, 27, 45, 48, 49, 52, 60, 61, 74n5, 114, 118, 142, 147 Convergence criteria, 18–20 Maddison, 9–11 Marelli, 24, 41n12, 42n19, 77n26, 106, 112n33, 158n16 Masera, 135n12, 158n17 McKinnon, 21, 61 Merchandize exports and imports, 11 Micossi, 52, 73, 148, 159n21 Migration policies, 153 Monetarism, 47 Monetary policy activism, 55 of ECB (see European Central Bank) helicopter money, 147 Monetary unions adjustment mechanisms, 22, 59 asymmetric shocks, 59–60 benefits, 59–60 costs, 21 incomplete, 127, 139, 148 insurance mechanisms, 59 See also OCA theories Moral hazard, 93, 114, 134n8, 150, 155 Moro, 42n17, 109n2, 111n24, 157n10 Mundell, 18, 21, 22 Mutualization, 119, 129, 130, 135n18, 150–151 N National Reform Plans (NRP), 70 NEET, 108, 132 See also Unemployment New Classical Macroeconomics, 17 New Member States (NMS), 50 Nice (Treaty of), Non-performing loans, 130, 144 Non-tariff barriers, O Obama, 64, 89, 122 Optimal Currency Area (OCA) theories, 20–24 endogeneity hypothesis, 25, 31 See also Monetary unions Opting-out, 41n6 O’Rourke, 110n9, 142, 159n29 Output gap, 101, 102, 111n30, 112n31, 112n32, 147 See also Potential output Outright monetary transactions (OMTs), 123 P Paulson Plan, 64 Perotti, 71 Phillips curve, 17 PIIGS, 42n13, 93, 96, 110n19, 111n24, 123, 126, 143 Pissarides, 159n28 Political union, 153–156, 160n37 Populist movements, 153 Portugal, 3, 7, 27, 35, 43n29, 65, 67, 68, 70, 93, 94, 96, 102, 104, 106, 111n24, 114, 116, 123, 143 Potential output, 101, 102, 140, 143, 144, 157n3 potential growth, 101 Primary balance, 66, 68 INDEX Prodi, 63 Productivity, 5, 25, 28, 42n16, 43n22, 56, 74, 77n26, 93, 102, 131, 132, 140, 141, 143, 144 Public account balance, 66 See also Government budget Public debt, 18, 19, 26, 60, 64, 68, 69, 73, 74n9, 75n10, 75n11, 88, 93, 94, 110n14, 110n15, 111n25, 116, 120, 134n7, 150, 151 sustainability, 60, 68, 74n9, 75n10, 75n11, 116, 150 See also Government debt Public sector purchase programme, 125 Q Quantitative Easing (QE), 89, 122, 124–127, 147 R Rating agencies, 91, 128 R&D, 7, 74, 132, 136n34, 137n35, 144, 145, 149, 159n19 Recession double-dip, 70, 89, 111n27, 130 See also Great Recession Recovery, 65, 71, 72, 86, 89, 91, 94, 96, 110n10, 114, 118, 120, 122, 124–127, 130, 139, 143, 144, 156, 157n8, 158n11, 159n23 Reinhart, 71, 109n1, 110n18 Ricardian equivalence, 71 Risk default, 26, 60, 61, 70, 92, 93, 116, 119, 136n29 exchange-rate, 21, 22, 25 redenomination, 93 risk-reduction, 115, 151, 152, 155 risk-sharing, 27, 155 systemic risk, 90, 123, 128, 136n29 181 Rogoff, 47, 71, 110n18 Rome (Treaty of), 2, 3, 5, Rose, 22, 50, 71, 90, 132, 153 Roubini, 89, 158n13 S Salvatore, 79 Sapir, 25, 152 Save-States funds, 115, 116–118, 122 See also EFSF; ESM Scarpetta, 106 Schengen agreements, 153 Securities Market Programme (SMP), 114 Self-defeating (austerity), 72, 76n22, 118, 141 Signorelli, 3, 24, 41n12, 42n19, 75n10, 77n26, 114n33 Single Act, 3, Single Market, 3, 4–6, 19, 127 Single Resolution Mechanism (SRM), 129, 144 Single Supervisory Mechanism (SSM), 129, 144 SixPack, 68 Social cohesion, 4–5, 49, 119, 131, 156 Solidarity, 115, 129, 150 Sovereign debt, 14n8, 24, 27, 39, 41n13, 42n17, 54, 56, 65, 66, 68, 70, 71, 74n7, 81, 86, 88, 91–94, 98, 104, 110n20, 114–115, 119, 120, 122, 123, 127, 128–129, 134n8, 142, 149, 150, 151, 155, 158n14 crisis, 14n8, 24, 27, 39, 40n13, 54, 56, 65, 66, 68, 70, 71, 74n7, 86, 90, 93–96, 102, 106, 110n20, 114–115, 119, 120, 122, 123, 128, 149, 150, 151, 155 See also Public debt 182 INDEX Spain, 3, 7, 26, 27–28, 42n17, 46, 50, 61, 65, 66, 68, 74n1, 83, 86, 88, 89, 93, 94, 96, 104, 106, 111n24, 111n29, 114, 115, 118, 123, 126, 135n16, 143 Spillover effects, 60 Spread, 16, 26, 48, 61, 70, 74n1, 84, 91, 93, 94, 111n21, 111n26, 118, 126, 134n5, 137n36, 140 Stability and Growth Pact (SGP) debt condition, 69 deficit condition, 115 flexibilities, 62, 145 golden rule, 145 macroeconomic imbalance procedure, 142 medium-term objective, 68, 111n30 new SGP, 68–69 stability plans, 70 Stabilization, 48, 51, 116 Stagnation, 24, 70, 75n12, 79, 86, 114, 124, 130, 139, 142, 143, 146, 153 Stiglitz, 16, 80, 81 Stress test, 136n30 Structural deficit, 68, 101, 157n3 Structural funds, 5, 7, 131, 145, 149, 155 Structural policies, 11, 19, 45, 47, 48, 101, 102, 130–134, 149 structural reforms, 101 Sub-prime crisis, 79–84, 135n10 Subsidiarity principle, 152, 155, 160n35 Systemic risk, 90 T Tabellini, 76n19, 117, 152, 155 Tapering, 122 Targeted Long Term Refinancing Operations (T-LTRO), 124 Tariffs, 2, 5, 16 Taylor, 76n20, 142, 159n29 Tobin tax, 91 Trade integration, 28, 39, 44n33 Troika, 111n25, 116–118 Two-Pack, 150 U Unemployment long-term, 104, 109 structural, 86, 101, 111n29, 131, 155 youth, 106, 112n33, 118, 132 United Kingdom (UK), 2, 3, 10, 12, 34, 41n6, 43n33 United States (US), 10, 11, 12, 13, 17, 22, 26, 27, 42n15, 48, 49, 50, 53, 54, 55, 56, 154, 156, 161n44 US dollar, 56 United States of Europe, 154, 156, 161n44 V Van Rompuy, 128, 153 W Washington consensus, 16 Werner plan, 19 Widening, 1–4, 25, 61, 131 World Bank, 2, 10, 16, 80 World Trade Organization (WTO), 80 Wyplosz, 70, 160n37 Y Yellen, 49 .. .Europe and the Euro Enrico Marelli • Marcello Signorelli Europe and the Euro Integration, Crisis and Policies Foreword by Paul De Grauwe Enrico Marelli... many books and articles on the causes, characteristics, and consequences of the crises in the Eurozone On the other hand, the number of publications on the process of European economic integration. .. million deaths and massive destruction At the end of this historical © The Author(s) 2017 E Marelli, M Signorelli, Europe and the Euro, DOI 10.1007/978-3-319-45729-1_1 EUROPE AND THE EURO event,