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.