Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in Europe

Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in Europe

This paper analyzes different government debt relief programs in the European Monetary Union. I build a model and study different options ranging from debt relief to the European Stability Mechanism (ESM). The analysis reveals the following: First, patient countries repay debt, while impatient count...

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Main Author: Bodo Herzog
Format: Article
Language:English
Published: MDPI AG 2016-05-01
Series:Economies
Subjects:
European Monetary Union
debt relief
debt crisis
European Stability Mechanism
Online Access:http://www.mdpi.com/2227-7099/4/2/9
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spelling doaj-89d6cb9c45714b98a5b3498ab153c60b2020-11-24T22:40:05ZengMDPI AGEconomies2227-70992016-05-0142910.3390/economies4020009economies4020009Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in EuropeBodo Herzog0ESB Business School, Reutlingen University, Alteburgstraße 150, Reutlingen D-72762, GermanyThis paper analyzes different government debt relief programs in the European Monetary Union. I build a model and study different options ranging from debt relief to the European Stability Mechanism (ESM). The analysis reveals the following: First, patient countries repay debt, while impatient countries more likely consume and default. Second, without ESM loans, indebted countries default anyway. Third, if the probability to be an impatient government is high, then the supply of loans is constrained. In general, sustainable and unsustainable governments should be incentivized differently especially in a supranational monetary union. Finally, I develop policy recommendations for the ongoing debate in the Eurozone.http://www.mdpi.com/2227-7099/4/2/9European Monetary Uniondebt reliefdebt crisisEuropean Stability Mechanism
collection DOAJ
language English
format Article
sources DOAJ
author Bodo Herzog
spellingShingle Bodo Herzog
Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in Europe
Economies
European Monetary Union
debt relief
debt crisis
European Stability Mechanism
author_facet Bodo Herzog
author_sort Bodo Herzog
title Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in Europe
title_short Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in Europe
title_full Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in Europe
title_fullStr Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in Europe
title_full_unstemmed Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in Europe
title_sort modelling monetary and fiscal governance in the wake of the sovereign debt crisis in europe
publisher MDPI AG
series Economies
issn 2227-7099
publishDate 2016-05-01
description This paper analyzes different government debt relief programs in the European Monetary Union. I build a model and study different options ranging from debt relief to the European Stability Mechanism (ESM). The analysis reveals the following: First, patient countries repay debt, while impatient countries more likely consume and default. Second, without ESM loans, indebted countries default anyway. Third, if the probability to be an impatient government is high, then the supply of loans is constrained. In general, sustainable and unsustainable governments should be incentivized differently especially in a supranational monetary union. Finally, I develop policy recommendations for the ongoing debate in the Eurozone.
topic European Monetary Union
debt relief
debt crisis
European Stability Mechanism
url http://www.mdpi.com/2227-7099/4/2/9
work_keys_str_mv AT bodoherzog modellingmonetaryandfiscalgovernanceinthewakeofthesovereigndebtcrisisineurope
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