
Contents
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Euro Area Economies in the Global Economy Euro Area Economies in the Global Economy
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Macro Performance of the Euro Area Macro Performance of the Euro Area
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The Centre Countries of the Euro Area The Centre Countries of the Euro Area
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The Crisis Countries in the Euro Area The Crisis Countries in the Euro Area
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Greece: Public Sector as the Villain Greece: Public Sector as the Villain
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Ireland: Domestic Banks and Property Price Bubble Ireland: Domestic Banks and Property Price Bubble
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Portugal: Low Growth and High Twin Deficits Portugal: Low Growth and High Twin Deficits
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Italy: Private Sector and Governance Issues Italy: Private Sector and Governance Issues
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Spain: Current Account Deficit and Shadow Banking Spain: Current Account Deficit and Shadow Banking
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Iceland: An Overleveraged Banking Sector Exposed to Foreigners Iceland: An Overleveraged Banking Sector Exposed to Foreigners
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Channels of Contagion of the Euro Area Crisis Channels of Contagion of the Euro Area Crisis
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Exploring Patterns and Solution Packages of the Euro Area Crisis Exploring Patterns and Solution Packages of the Euro Area Crisis
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Characteristics of the Crisis Countries Characteristics of the Crisis Countries
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Optimum Currency Area: A Relevant Digression Optimum Currency Area: A Relevant Digression
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Euro Area Crisis: Some Common Features Euro Area Crisis: Some Common Features
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Euro Area Rescue Package Euro Area Rescue Package
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Fiscal Package Fiscal Package
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Assistance from Europe Assistance from Europe
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IMF Programmes IMF Programmes
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Intervention by the ECB Intervention by the ECB
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Why Did the Pandemic Not Accentuate a Crisis in the Euro Area? Why Did the Pandemic Not Accentuate a Crisis in the Euro Area?
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Fiscal and Financial Linkages: Structural Characteristics Fiscal and Financial Linkages: Structural Characteristics
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Banking Union Banking Union
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Fiscal Union Fiscal Union
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Political Union Political Union
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Appendix 6A IMF Country Groupings Appendix 6A IMF Country Groupings
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1. Advanced Economies (37 Countries) 1. Advanced Economies (37 Countries)
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2. Euro Area (20 Countries) 2. Euro Area (20 Countries)
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3. Major Advanced Economies (G7) 3. Major Advanced Economies (G7)
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4. Newly Industrialized Asian Economies (Four Countries) 4. Newly Industrialized Asian Economies (Four Countries)
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5. Other Advanced Economies (Advanced Economies Excluding G7 and Euro Area—Composed of 17 Countries) 5. Other Advanced Economies (Advanced Economies Excluding G7 and Euro Area—Composed of 17 Countries)
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6. European Union (27 Countries) 6. European Union (27 Countries)
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7. Emerging Market and Developing Economies (151 Countries) 7. Emerging Market and Developing Economies (151 Countries)
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10. Developing Asia (27 Countries) 10. Developing Asia (27 Countries)
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11. ASEAN-5 11. ASEAN-5
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12. Latin America and the Caribbean (32 Countries) 12. Latin America and the Caribbean (32 Countries)
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13. Middle East and North Africa (20 Countries) 13. Middle East and North Africa (20 Countries)
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14. Sub-Saharan Africa (45 Countries) 14. Sub-Saharan Africa (45 Countries)
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Appendix 6B The European Union and the Euro Area Appendix 6B The European Union and the Euro Area
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6 Euro Area Economies: The Crisis and Thereafter
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Published:November 2024
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Abstract
This chapter gives an account of the genesis of the crisis in the euro area economies with emphasis on the crisis-ridden GIIPS (Greece, Ireland, Italy, Portugal, and Spain) countries, as well as the impact of the pandemic. While concentrating on the crisis-ridden euro area economies, it notes that apart from the crisis-ridden GIIPS countries the crisis engulfed non-euro area but European Union (EU) member countries like Iceland (initially) and the UK and Cyprus. Among the GIIPS countries, the diagnosis was by no means uniform. The Greek tragedy can be primarily traced to fiscal profligacy fuelled by the private financial sector’s myopia that chose to ignore the internal fundamental differences among the euro area countries in the hope of a bailout in the event of a crisis. In some sense, the root cause of the Irish crisis can be found in the inadequate risk management practices of the Irish banks and the failure of the financial regulator to supervise these practices effectively. While the global financial crisis had a marginal impact on Portugal, in an already deteriorating debt-deficit situation coupled with low productivity–low growth syndrome, such marginal impact was amplified. Italy, often described as the ‘sick man of Europe’, had one of the largest public debts in the EU and ranked third in the world in 2007.
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