Saturday, February 1, 2014

The Atlanta Fed Interviews Sergio Rebelo About The Eurozone

Sergio Rebelo is an international economist at Northwestern University. 
He answers questions about the causes of the crisis and the impact of monetary policy and fiscal policy on the recovery.  He believes that these policies were largely a failure.  The countries most harmed by the crisis are less solvent now that they were before the fiscal medicine was applied.  If the intent of fiscal policy was to strengthen to fiscal positions of the governments in the periphery it did not work.  He also believes that the stress tests imposed on the banks during the crisis were a failure.  The banks were declared healthy so they did not raise any capital.  They chose to reduce their assets instead to improve their capital ratios.  That led to a credit crises which was not helpful.  There has been a modest recovery in the eurozone as a whole, but there is still a risk that a Japanese style period of low growth and price deflation will occur unless some changes are made in the structure of the eurozone. 

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