1. JOURNAL OF PUBLIC AND INTERNATIONAL AFFAIRS 2012
- Author:
- Dan Fichtler and Andrew Shaver
- Publication Date:
- 03-2012
- Content Type:
- Journal Article
- Journal:
- Journal of Public and International Affairs (JPIA)
- Institution:
- School of Public and International Affairs (SPIA), Princeton University
- Abstract:
- The European sovereign debt crisis is surprisingly persistent in defying any solution. Germany would be a natural candidate to lead the implementation of measures to stop the crisis. However, Germany has shown only limited effort in doing so, although it benefits significantly from the Euro. Germany is often accused of weak leadership and questionable economic assumptions by the media. Instead, this paper will argue that Germany has acted rationally and benefits from a delay of the crisis. The analysis of the current situation, which is based on a game-theoretic model, offers evidence that some countries maximize their benefits by delaying the crisis. The crisis stimulates exports due to an undervalued Euro and significantly decreases interest rates for safe sovereign bonds. The delay of the crisis introduces a high risk that the monetary union will break up, even if all countries would individually prefer to keep the monetary union. This risk is created by the structure of the decision making process, which has an inherent tendency towards the delaying of a solution. A different decision making process based on majority rule would increase the likelihood that a solution to the crisis would be developed more quickly. Alternatively, concessions by countries suffering from a delay of the crisis to countries like Germany can compensate for any foregone benefits.
- Topic:
- International Affairs
- Political Geography:
- Europe and Germany