Did the Euro Kill Governance in the Periphery?
Yves here. We’re a little EU-centric tonight as a result of a wealth of particularly good material, which is often a sign that stresses are rising (there was tons of good material in the runup to the crisis as well).
By Jesús Fernández-Villaverde, Professor of Economics, University of Pennsylvania and Luis Garicano, Research Fellow with the Productivity and Innovation Programme, Centre for Economic Performance; Professor of Economics and Strategy, Departments of Management and of Economics. Cross posted from VoxEU
By the end of the 1990s, under the incentive of Eurozone entry, most peripheral European countries were busy undertaking structural reforms and putting their fiscal houses in order. This column argues that the arrival of the euro, and the subsequent interest-rate convergence, loosened a tide of cheap money that reversed the incentives for further reforms. As a result, by the end of the euro’s first decade, the institutions and governance in the Eurozone periphery were in worse shape than they were at the start of the decade.
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