This paper asks whether rating agencies played a passive role or were an active driving force during Europe's sovereign debt crisis. We address this by estimating relationships between sovereign debt ratings and macroeconomic and structural variables. We then use these equ-ations to decompose...

We show that in the EU there were diverse causes for the sovereign debt crisis. Yet, fiscal austerity was hastily imposed assuming that the multiplier would be weak and fiscal consolidation could quickly be achieved. Yet, it turned out that fiscal consolidation is state dependent: It is...

There are two major failings in policy interventions in the crisis in the US and Europe: the reluctance to remove the debt overhang through timely, orderly and comprehensive restructuring and the shift to fiscal austerity after an initial reflation. These have resulted in excessive reliance on...