Sovereign debt contagion across the EU: searching for causes and mechanics

Malović, Marko and Marinković, Srđan (2012) Sovereign debt contagion across the EU: searching for causes and mechanics. In: Serbia and the European Union: proceedings of the International scientific conference. Faculty of Economics, Niš, pp. 85-96. ISBN 978-86-6139-061-6

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Abstract

The paper explores the main causes behind- and spreading mechanics in- the wave of sovereign debt overhangs that has been mounting recently across Europe. We offer two concurrent explanations: international contagion of a macroeconomic shock, and structural flaws in the design of E(M)U and its development paradigm. Moreover, we found the immediate policy response to have repeatedly gone awry and turned sour, since EMU’s tactics of bailing out their banks rather than their sovereigns, can be summarized as the policy of too little, too late and to the wrong beneficiary. In compliance with the identified causes, we suggest urgent recourse to the healthier banking, growth oriented yet thriftier public finance, jointly with other measures meant to boost European economies’ competitiveness.

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