Dimitri Papadimitriou and Randall Wray deliver a second installment of their joint assessment of the risks that a renewed global financial crisis might be triggered by events in Europe or the United States.  In their latest one-pager they move past disputes over etiology and lay out their solutions for both sides of the pond:  addressing the basic flaws in the setup of the European Monetary Union (“the EMU is like a United States without a Treasury or a fully functioning Federal Reserve”) and outlining how to place the US financial system and “real” economy on more solid foundations.

Read the newest one-pager here.

Their first one-pager focused on the reasons it is unhelpful to label the turbulence in Europe a “sovereign debt crisis.”  This way of framing the situation obscures more than it enlightens.  To recap:  prior to the crisis only a couple of countries had debt ratios that significantly exceeded Maastricht limits.  For most, the economic crisis was the cause of rising public debt ratios, rather than the other way round.  What we really need to look at, Papadimitriou and Wray suggest, are private debt ratios and current account imbalances within the eurozone.  And as for current public insolvency concerns, this has far more to do with the flaws in the institutional setup of the European Monetary Union than the particular size of a country’s debt ratio:  countries that control their own currencies aren’t experiencing comparable difficulties.

(For a more detailed investigation, Papadimitriou and Wray will be releasing a new public policy brief:  “Fiddling in Euroland as the Global Meltdown Nears.”)