Panic-driven austerity in the Eurozone and its implications

Paul De Grauwe, Yuemei Ji, 21 February 2013



Southern Eurozone countries have been forced to introduce severe austerity programs since 2011. Where did the forces that led these countries into austerity come from? Are these forces the result of deteriorating economic fundamentals that made austerity inevitable?

Topics: Financial markets, Macroeconomic policy
Tags: austerity, eurozone, financial panic

Why should we believe the market this time?

Paul De Grauwe, 7 February 2009



Spreads of sovereign debt within the eurozone have increased dramatically during the last few months. Figure 1 shows the evidence. The governments of Greece and Ireland now pay an interest rate on their debt that exceeds the German government bond rate by more than 200 basis points, while the governments of Spain, Portugal and Italy have to pay more than 100 basis points extra.

Topics: International finance, Macroeconomic policy
Tags: eurozone, financial panic, flight to safety, government bonds, sovereign debt, spreads

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