The financial crisis in the Euro Zone. A balance of payments crisis with a single currency?

• Autores: Eladio Febrero Paños, Jorge Uxó González, Fernando Bermejo Patón
• Localización: Documentos de Trabajo DAEF (Departamento de Análisis Económico y Finanzas). UCLM, ISSN-e 1989-4856, Nº. 1, 2016, 25 págs.
• Idioma: inglés
• Enlaces
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• Resumen

  • In a pegged exchange rate system, a balance of payments crisis happens when serious doubts arise about whether a debtor country holds sufficient international reserves to keep the country�s fixed exchange rate. In the Euro Zone, doubts that banks and governments of peripheral countries could settle debts when they matured led to a massive capital outflow after the fall of Lehman Brothers. However, the ECB offset massive financial capital withdrawals with a huge inflow of reserves to the Euro Zone periphery.

    In some contributions, Cesaratto holds that the situation in the Euro Zone resembled a balance of payments crisis, and that the ECB rescued peripheral countries through the TARGET2 system.

    He sees the Euro Zone as a fixed exchange rate regime.

    Conversely, other authors reject this view, arguing that the Euro Zone crisis is more the consequence of bad bank behaviour, with a mistaken initial institutional design making things even worse.

    In this paper we discuss whether the Euro Zone countries experienced a balance of payments crisis and if the ECB stealthily bailed out peripheral countries or whether it just did what it had to do to keep control over the overnight interest rate and to keep the payment system running smoothly. The fact that the Euro Zone is not a fixed exchange regime but a currency union, and the lack of some institutions are pivotal elements in this discussion