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Fiscal austerity and monetary easing: which one is to be praised for ending the euro area crisis?

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  • Pompeo Della Posta

Abstract

In this paper I have used a framework for the analysis of public debt stability that dates back to Domar, and I have extended it in order to consider, together with the role played by the interest rate, the rate of GDP growth and domestic fiscal policy, also monetary solidarity. A special role has been reserved in the analysis to the effects of agents’ heterogeneous expectations and uncertainty. I have also considered the effects of fiscal austerity and monetary solidarity on GDP growth and interest rates, and I have concluded that the euro area crisis came to an end thanks to the latter (the former having made things even worse, if anything). Within the same framework, I have been able to discuss also some of the other proposals, including federal solidarity, that have been advanced in the literature in order to avoid or to address future euro area crises.

Suggested Citation

  • Pompeo Della Posta, 2018. "Fiscal austerity and monetary easing: which one is to be praised for ending the euro area crisis?," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 15(1), pages 165-189, June.
    • Handle: RePEc:liu:liucej:v:15:y:2018:i:1:p:165-189
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    Cited by:

    1. Pompeo Della Posta & Enrico Marelli & Marcello Signorelli, 2022. "COVID-19, Economic Policies and Public Debt Sustainability in Italy," Sustainability, MDPI, vol. 14(8), pages 1-20, April.
    2. Pompeo Della Posta & Enrico Marelli & Marcello Signorelli, 2020. "A market‐financed and growth‐enhancing investment plan for the euro area," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 604-632, July.

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