Debt Mutualisation in the Ongoing Eurozone Crisis – A Tale of the ‘North’ and the ‘South’
This article builds upon a highly stylised but widespread definition of the ‘Southern’ and ‘Northern’ views on debt mutualisation. It explains both positions in the ongoing Eurozone crisis and what both sides hope to achieve in reshaping the governance of the euro. Both sides agree on many things, such as the current threat to the survival of the euro. But the ‘South’ sees the main threat to the Eurozone as coming from the fear and panic that can suddenly increase borrowing costs and push countries into insolvency. The ‘North’, on the contrary, reckons that the principal menace stems from removing this market pressure too quickly, dampening the need to reform. Both speak of the political backlash that the crisis creates. For the ‘South’ it is excessive austerity in debtor nations that should be resisted; for the ‘North’ it is excessive liabilities in creditor states that can cause resentment. The article concludes that the debate about mutualisation of debt is not just about the future of monetary union, but also about the political future of the European Union. Any successful deal must come up with a recipe of how to (re-)create trust between European citizens and their elected governments.
I am grateful for valuable comments to Alison Howson and Iain Begg.
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