Autore:
Botta, Alberto Titolo:
Fiscal Policy, Eurobonds and Economic Recovery: Some Heterodox Policy Recipes against Financial Instability and Sovereign Debt CrisisPeriodico:
Università degli Studi dell'Insubria. Dipartimento di Economia. Quaderni di ricercaAnno:
2011 - Fascicolo:
14 - Pagina iniziale:
1 - Pagina finale:
25In this paper, we propose a simple post-Keynesian model on the linkages between the financial and real side of an economy. We show how, according to the Minskyan instability hypothesis, financial
variables, credit availability and asset prices in particular, may feedback each other and affect economic activity, possibly giving rise to intrinsically unstable economic processes. Through these
destabilizing mechanisms, we also explain why governments intervention in the aftermath of the 2007 financial meltdown has been largely useless to restore financial tranquility and economic
growth, but transformed a private debt crisis into a sovereign debt one. The paper ends up by looking at the long run and to the interaction between long-term growth potential and public debt
sustainability. We explicitly consider the European economic context and the difficulties several EU members currently face to simultaneously support economic recovery and consolidate fiscal
imbalances. We stress that: (i) financial turbulences may trigger permanent reductions in long-term growth potential and unsustainable public debt dynamics; (ii) strong institutional discontinuity
such as EU financial assistance to member countries may prove to be the only way to restore growth and ensure long-run public debt sustainability.
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