Europe’s Sovereign Debt Crisis: No Place to Hide?

While it is indeed true that no man—or nation—is an island, especially not in a world of highly integrated financial markets, it is important to be clear that the southern European crisis was not inevitable. It sprang mainly from the failure to implement the fiscal discipline required of nations that participate in a single currency area, especially nations with widely divergent rates of productivity growth and limited labor mobility among them. The crisis makes clear that countries that cannot demonstrate a credible return to fiscal discipline should not be part of the EMU, since a lack of fiscal discipline in some countries compromises the credibility of the euro as a viable store of value.

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