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The Euro Crisis and Its Aftermath$
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Jean Pisani-Ferry

Print publication date: 2014

Print ISBN-13: 9780199993338

Published to Oxford Scholarship Online: May 2014

DOI: 10.1093/acprof:oso/9780199993338.001.0001

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The Dogs That Did Not Bark

The Dogs That Did Not Bark

Chapter:
(p.67) Chapter 10 The Dogs That Did Not Bark
Source:
The Euro Crisis and Its Aftermath
Author(s):

Jean Pisani-Ferry

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199993338.003.0010

During the 1990s, economic policy was conducted under the watchful supervision of financial markets and exchange rate fluctuations were eyed nervously by European finance ministers. But when the euro was introduced in 1999, it was as if these external pressures had disappeared. Markets ceased to exercise their disciplining power on economic policymaking, and differences in interest rates between countries shrunk. This happened for at least three reasons: financial markets are not cold and precise calculating machines, and are subject to frequent changes in risk appetite; assessing a state’s long-term solvency is costly and as long as the risk seemed remote, investors’ attention was elsewhere; and lastly, investors did not see the no-bailout clause as credible enough. Starting in 2009, financial markets were back again. Economic policymaking was once again subject to their close scrutiny, in a context of mounting fears of state insolvency.

Keywords:   Europe, interest rates, exchange rates, monetary policy, economic policy, financial markets, euro, no-bailout clause

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