The economic and financial crisis in Europe: addressing the causes and the repercussions

Abstract

The article analyses the situation facing the European economy and traces both the more fundamental and the proximate causes of the worsening crisis. It argues that European policymakers have the tools at their disposal to limit the extent and duration of the recession and proposes a package consisting of five elements: expansionary monetary policy; a coordinated fiscal stimulus; anti-deflationary wage policies; continued efforts to stabilise the financial sector; and ad hoc national measures to break negative feedback loops. Proposals are also developed for more medium-term measures to prevent crises in the future and improve Europe's ability to effectively manage its economy. The article concludes that, given the major question marks as to whether, with the current institutional structures, Europe actually will manage to put in place the required coordinated response, a 1929-scenario, while far from inevitable, remains a possibility.economic crisis; European policy-making; coordinated fiscal stimulus