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Causes of the European Debt Crisis: Testing for Fiscal Sustainability

Causes of the European Debt Crisis: Testing for Fiscal Sustainability DER DONAURAUM Jahrgang 52 ­ Heft 3-4/2012 Introduction The recent global financial crisis and ongoing Eurozone crisis reveal the vulnerabilities of fiscal sustainability in some Eurozone countries, where fiscal sustainability has been considered one of the pivotal macroeconomic tasks. To achieve and sustain the abovementioned fiscal purpose, on 7 February 1992 the members of the European Community signed the Maastricht Treaty, which set out the conditions and timetable for a monetary union. In this treaty the member states pledged to limit their deficit spending not exceeding 3 percent of GDP and to keep debt levels at 60 percent of GDP. The Maastricht criteria were primarily motivated by Germany's desire to ensure that the qualifying members had a strong fiscal and monetary background. In other words, the member countries seem keen to exclude countries with a poor economic record and high likelihood of printing money when faced with economic difficulty (Pilbeam 2006). Over the past decade, fiscal sustainability has been a central issue for member countries. The reasons can be described as follows: first, individual fiscal discipline is a pivotal proxy for the establishment of a common monetary policy; second, debt accumulation associated with a consequent budget deficit may http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Der Donauraum de Gruyter

Causes of the European Debt Crisis: Testing for Fiscal Sustainability

Alikhanov, Abdulla
Der Donauraum , Volume 53 – May 1, 2016
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Publisher
de Gruyter
Copyright
Copyright © 2016 by the
ISSN
0012-5415
eISSN
2307-289X
DOI
10.7767/dnrm-2016-3-406
Publisher site
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Abstract

DER DONAURAUM Jahrgang 52 ­ Heft 3-4/2012 Introduction The recent global financial crisis and ongoing Eurozone crisis reveal the vulnerabilities of fiscal sustainability in some Eurozone countries, where fiscal sustainability has been considered one of the pivotal macroeconomic tasks. To achieve and sustain the abovementioned fiscal purpose, on 7 February 1992 the members of the European Community signed the Maastricht Treaty, which set out the conditions and timetable for a monetary union. In this treaty the member states pledged to limit their deficit spending not exceeding 3 percent of GDP and to keep debt levels at 60 percent of GDP. The Maastricht criteria were primarily motivated by Germany's desire to ensure that the qualifying members had a strong fiscal and monetary background. In other words, the member countries seem keen to exclude countries with a poor economic record and high likelihood of printing money when faced with economic difficulty (Pilbeam 2006). Over the past decade, fiscal sustainability has been a central issue for member countries. The reasons can be described as follows: first, individual fiscal discipline is a pivotal proxy for the establishment of a common monetary policy; second, debt accumulation associated with a consequent budget deficit may

Journal

Der Donauraum – de Gruyter

Published: May 1, 2016

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