Comment on “How the Euro Crisis Evolved and how to Avoid Another: EMU, Fiscal Policy and Credit Ratings”

摘要

This comment discusses the paper “How the euro crisis evolved and how to avoid another: EMU, fiscal policy and credit ratings" by Vito Polito and Mike Wickens, which was presented in the Bank of Greece Conference in May 2013.This paper offers a motivating analysis of one of the main causes of the euro crisis and provides two suggestions to avoid future crises. The cause behind the eurozone crisis is identified as the common ECB monetary policy, pursued in economies with different inflation rates in the pre-crisis years.’ Based on this analysis, the paper makes two policy suggestions for the future: (i) a loose monetary policy stance in high inflation economies should be offset by tight fiscal policy; (ii) markets should impose higher interest rates in different economies by pricing in default risk. To facilitate the implementation of the policy suggestions, the authors provide: (1) an index of an economy’s fiscal stance to be monitored by policy makers and the markets and (2) a sovereign credit rating based on available fiscal data, which could be used by the markets to price in a risk premium on the borrowing rates of governments. My comments are organised around the three main points of the paper; the cause of the crisis and the two policy solutions.