Book

The Euro Trap

Hans-Werner Sinn

Published in print July 2014 | ISBN: 9780198702139
Published online October 2014 | e-ISBN: 9780191771828 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780198702139.001.0001
The Euro Trap

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This book offers a critical assessment of the history of the euro, its crisis and the rescue measures taken by the European Central Bank and the community of states, above all the extra refinancing credit provided by local central banks (Target credit) which dwarfs all other rescue credits. The euro induced huge capital flows from the northern to the southern countries of the Eurozone that triggered an inflationary credit bubble in the latter, deprived them of their competitiveness, and made them vulnerable to the financial crisis that spilled over from the US in 2007 and 2008. As private capital shied away from the southern countries, the ECB helped out by providing credit from the local money-printing presses. The ECB became heavily exposed to investment risks in the process, and subsequently had to be bailed out by intergovernmental rescue operations that provided replacement credit for the ECB credit, which itself had replaced the dwindling private credit. The interventions stretched the legal strictures stipulated by the Maastricht Treaty which, in the absence of a European federal state, had granted the ECB a very limited mandate. These interventions created a path dependency that effectively made parliaments vicarious agents of the ECB’s Governing Council. This book describes what the author considers to be a dangerous political process that undermines both the market economy and democracy, without solving southern Europe’s competitiveness problem.

Keywords: Target; European Central Bank; rescue operations; euro; Maastricht Treaty; credit bubbles; ECB

Book.  416 pages.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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