The commitment device bites back This blow-by-blow account fails, however, to explain why these mechanisms have been so uniquely pernicious in the euro area: after all, all of the world’s economies have been hit by the crisis to some extent or another.
In order to understand why the euro has been at the epicentre of the global crisis the key concept to keep in mind is the concept of a commitment device. The euro is a commitment device whereby member countries increased the cost of policy laxity with the intention of obtaining the benefits of enhanced credibility that policy would be disciplined.