Abstract
The current global economic and fi nancial crisis has challenged the mechanism of economic policy coordination in the European Union. Since 2008 all EU countries have been affected by this crisis, most of them have been in recession, or close to it. The insolvent, in particular, PIIGS (Portugal, Italy, Ireland, Greece, Spain) cannot fi nance their defi cits on their own in open credit markets. They are suffering from high government defi cits and can keep on spending only by way of loans from international organizations. Their debt ratings have been downgraded by various credit rating institutions and their unemployment rates are reaching record highs. On the other hand, banks within wealthier EU member countries, such as Germany, hold PIIGS bond debt (notably that of Greece), and have had their central banks’ credit ratings downgraded because of this exposure.
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