Reconsidering the economic and political reasons of the euro area crisis: Diverging fundamentals or self-fulfilling expectations?




Euro crisis, Fundamentals, Self-fulfilling expectations, Fiscal solidarity, Monetary solidarity


This article nests the explanations of the euro crisis in terms of economic, political and institutional causes within the diverging fundamentals vs. self-fulfilling expectations debate. It argues that explanations based on fundamental divergences refer to a subset of economic variables only, while those based on self-fulfilling expectations refer to political and institutional variables. However, since there is no reason not to include the latter among the fundamental variables of an economy, there is no need to refer to negative self-fulfilling expectations as an explanation for the crisis. In the paper, the role played by political and institutional variables, namely federal and monetary solidarity, is formalized in a simple model of diverging fundamentals that goes beyond the consideration of economic variables only.


JEL Classification: E58, E65, F36, F45, G01

Author Biography

Pompeo Della Posta, Università di Pisa

Dipartimento di Economia e Management

Via Ridolfi, 10

56124 Pisa


Associate Professor



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How to Cite

Della Posta, P. (2017). Reconsidering the economic and political reasons of the euro area crisis: Diverging fundamentals or self-fulfilling expectations?. PSL Quarterly Review, 70(282), 283–310.