Europe’s financial crisis
This chapter concerns the role of that flawed financial architecture. The eurozone crisis started as a private-sector debt crisis, but it jumped the line and became a public-sector debt crisis because the euro's architecture prohibits the European Central Bank (ECB) from helping governments finance their deficits and manage their debts. Under the old system of national money, central banks played a key 'government banker' role by helping manage the government debt and finance spending, including financial sector rescues. The flaw in the euro system is that the ECB is not allowed to intervene in the bond market and help governments under speculative attack. Palley argues that the solution is a new public finance architecture involving the creation of a European Public Finance Authority (EPFA), which would issue European bonds, jointly and severally backed by all member countries. However, there would be an initial transition period in which countries would swap existing national debt for new EPFA debt.