Charles Wyplosz, Graduate Institute of International and Development Studies, Geneva and CEPR
(European Economy. Economic Papers. 498. April 2013.
Brussels. PDF. 52pp. Tab. Bibliogr. Free.)
KC-AI-13-498-EN-N ISBN: 978-92-79-28580-6
This paper argues that the sovereign debt crisis is the result of a lack of fiscal discipline broadly defined to include adequate banking supervision. The paper argues that Europe has inadvertently adopted the wrong model of collective discipline, because it is centralized while a decentralized model not only better fits the Euro Area makeup but also has a superior track record. It also notes the need for the ECB to accept its role of lender of last resort, which in turn requires the adoption of a full-blown banking union.