The Debt Crisis as a Crisis of Governance?

The European leaders are meeting on December 9, 2011 in order to forge a common solution to the debt crisis in Europe or as doomsayers predict witness a disaster of catastrophic proportions. A new EuPI policy brief puts forward the opinion that the crisis in Europe is not only a debt crisis and there are multiple forces at work here so the responses could not include only economic and financial measures.

EuPI Policy Brief  "The Combo Meal that Europe Should Rethink: The Debt Crisis as a Crisis of Governance?" claims that:

  • The exposure of a European country to the crisis seems to depend on both its debt level and its governance performance as there is a specific interplay of the two factors.
  • The debt ceiling of 60% of GDP of the Maastricht criteria cannot be a universal measure and the safe debt level ceilings seem to be country specific, defined by particular debt to governance ratio of a country.
  • Countries with poorer governance performance are closer to the danger zone even in case they have low debt levels.
  • The crisis in Europe is not only a debt crisis and there are multiple forces at work here so the responses could not include only economic and financial measures.

Based on the "debt vs. governance" assumption, the policy brief identifies the proximity of a country to a crisis, the probability of country reaching a crisis debt level and outlines the maximum debt ceilings each country can withstand before plunging into a serious trouble. Finally, the brief puts forward recommendations within a matrix for developing country-specific recovery packages. The policy brief is based on findings of the forthcoming Catch-Up Index of the Open Society Institute Sofia.

The full text of the policy brief, written by Marin Lessenski, is available here.

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