In a new post at VoxEU, OECD economists Pier Carlo Padoan and Urban Sila and European Commission economist Paul Van Den Noord take a look at what a recovery could look like for a “typical” Eurozone country over a 14 year horizon.
They start with a baseline or “bad equilibrium”. In that case current policies continue, and creditor countries benefit from safe haven status while debtor countries see yields rise and enter a vicious cycle of increasing debt and no growth.
The alternative would include a backstop for troubled sovereigns and banks. It would have to be big and possibly open ended, with strict conditionality. Though that plan would be difficult, the authors argue that the charts speak for themselves as to why why such actions are needed.
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