Article

 

Economic risk transmission in Europe between the center and the periphery: A theoretical approach  (p.35-52)

by

Gildas Bondi, CRIISEA, Université de Picardie Jules Verne, Amiens

Nikolay Nenovsky, CRIISEA, Université de Picardie Jules Verne, Amiens & University of National and World Economy, Sofia IGERIA

Keywords : Euro-crisis, European integration, endogenous instability, EU enlargement

JEL classification : F33, F36, P20, P30

Abstract

Our main hypothesis is that the stylised division of the EU in sub-sets is largely endogenous and internal to the integration processes themselves. Given the genesis and the designed functioning of the EU and the Euro-zone, a set of centrifugal processes come into play inevitably leading to disintegration. The self-propelled breakdown processes come through the creation of "an illusory impression" of safety net and risk insurance in all sub-sets of the EU. This not only increases the overall level of risk and vulnerability but also leads to unfavourable risk redistribution directing it to the weaker links in the whole EU structure. The economic system then becomes much more vulnerable to not only external shocks but also to internal ones. This is usually accompanied by loss of discipline and the emergence of various forms of non-market and bandit behaviour in all sub-sets.