Fiscal strongpolicystrong in a monetary union of sovereign states.pdf

Working Paper 9/2011 The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective Eckhard Hein, Achim Truger, Till van Treeck July 11, 2011 Hans-Böckler-Straße 39 D-40476 Düsseldorf Germany Phone: +49-211-7778-331 IMK@boeckler.de http://www.imk-boeckler.de The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective* Eckhard Hein, Achim Truger, Till van Treeck Abstract: The financial and economic crisis in the Euro area has revealed a number of important flaws in the economic policy framework in Europe. On the one hand, the imbalances, which have dominated European development since the introduction of the euro, are not sustainable; and this is more serious in a period of crisis in particular. On the other hand, it has become clear that the Euro area suffers from a serious lack of institutions and policy concepts, which will not allow coping with deep financial and economic crises unless a deep restructuring takes place. The policy reactions of European governments, the European Commission and the European Central Bank in cooperation with the IMF will, therefore, hardly be able to initiate recovery. On the one hand, some important steps towards financial stabilisation have been made. On the other hand,