The Euro Area And The Financial Crisis

The financial crisis of 2007–10 has presented a number of key policy challenges for those concerned with the long-term stability of the euro area. It has shown that price stability as provided by the European Central Bank is not enough to guarantee financial stability, and exposed fault lines in governance and deficiencies in the architecture of the financial supervisory and regulatory framework. This book addresses these and other issues, including why the crisis affected some countries more than others, whether the euro is still attractive for new EU states, and what policy changes and structural reforms, both macro and micro, should be undertaken to ensure its future viability. Written by a team of leading academic and central bank economists, the book also includes chapters on the cross-country incidence of the crisis, the Irish crisis and ECB monetary policy during the crisis, and studies on Spain, the Baltics, Slovakia and Slovenia.

The financial crisis of 2007-2010 has presented a number of key policy challenges for those concerned with the long-term stability of the euro area. It has shown that price stability as provided by the European Central Bank is not enough to guarantee financial stability, and exposed fault lines in governance and deficiencies in the architecture of the financial supervisory and regulatory framework. This book addresses these and other issues, including why the crisis affected some countries more than others, whether the euro is still attractive for new EU states, and what policy changes and structural reforms, both macro and micro, should be undertaken to ensure its future viability. Written by a team of leading academic and central bank economists, the book also includes chapters on the cross-country incidence of the crisis, the Irish crisis and ECB monetary policy during the crisis, and studies on Spain, the Baltics, Slovakia and Slovenia.

While the use of public resources is critical to cushion the impact of the financial crisis on the euro-area economy, it is key that the entailed fiscal costs not be seen by markets as undermining fiscal sustainability. From this perspective, to what extent do movements in euro area sovereign spreads reflect country-specific solvency concerns? In line with previous studies, the paper suggests that euro area sovereign risk premium differentials tend to comove over time and are mainly driven by a common time-varying factor, mimicking global risk repricing. Since October 2008, however, there is evidence that markets have become progressively more concerned about the potential fiscal implications of national financial sectors' frailty and future debt dynamics. The liquidity of sovereign bond markets still seems to play a significant (albeit fairly limited) role in explaining changes in euro area spreads.

Contents: (1) Overview: Financial Architecture; Economic Performance; (2) The Financial Crisis and the European Union; (3) Phase I ¿ Build-up; (4) Phase II ¿ Liquidity Issues: Central Bank Operations; Interest Rates; Currency Swap Facilities; Depositor Guarantees; (5) Phase III ¿ Solvency and Deleveraging: The ¿European Framework for Action¿; ¿Bad Banks¿; (6) Phase IV ¿ Fiscal Intervention; European Economic Recovery Plan; Germany; France; United Kingdom; (7) Outlook. Charts and tables.

This book analyzes the effects of the recent crisis and evaluates potential solutions to the gridlock that is currently dominating the Eurozone and the European Union, concerning both the monetary policy and the budgetary and fiscal policy. The timely study highlights the main challenges that European political leaders will face in the months to come. Furthermore, its interdisciplinary approach embraces economic, financial and legal perspectives, so as to ensure the global coherence and comprehensiveness of its content. The contributors to this volume are prominent experts from the areas of Economics, Finance, Law, and Political Science, offering readers a multifaceted view of the topics discussed.

The global financial and economic crisis has brought about many effects that are still difficult to interpret univocally. This book studies the consequences of the crisis on Europe by examining the effects on the European institutional setup, governance and architecture and by studying in detail the different member countries.

The Euro and Economic Stability assesses the euro area's merits as a shelter and the merits of euro assets as a safe haven and reviews the case for rapid euro adoption from a post-crisis view. Policymakers and economists provide relevant lessons from euro area divergences for future euro area members and, more generally, from the financial crisis, while banking representatives discuss post-crisis business models of banks in the area. Last but not least, a theoretical introductory chapter fills the gap between mainstream macroeconomic modelling and real-world decision-making. The prime audience for this invaluable book will be economists and other experts in the fields of economic policy and European integration from central, commercial and investment banks, governments, international organizations, universities and research institutes. The book is also aimed at readers with a particular interest in the contributions' special regional focus: Central, Eastern and South-Eastern Europe.

​In light of the handover from the European Central Bank President Mario Draghi to Christine Lagarde in November 2019, this book provides an in-depth analysis of the events which unfolded since the euro area sovereign debt crisis in 2010 up until today. The book focuses on the far-reaching implications of the last decade, shedding light on a wide spectrum of political, economic and financial aspects of the European poly-crises and how monetary policy reacted to these challenges. The book places particular emphasis on the tensions that the supranational central bank was subject to during this period, and on their outcomes in terms of the policies, their legitimacy, and their public reception. As such, this book will be relevant not only to understand the political implications of the past crisis but also, and foremost, in understanding "what is next".

The first twenty years of the European Central Bank (ECB) offer a clear demonstration of how a central bank can navigate macroeconomic insecurity and crisis. As the global economy moves into a new phase of unheralded uncertainty, the story of the ECB holds multiple lessons of wider significance for the central banking community and researchers of monetary policy. This volume provides a unique account of how the ECB has reacted to the challenges confronting the euro area through its monetary policy, turning to innovative measures and unprecedented policy actions to fend off the various threats posed by the global financial turmoil of 2007/08, the euro area sovereign debt market crisis, and the subsequent period of anaemic growth and deflationary pressures. It also addresses some of the criticisms the ECB has faced regarding its policy initiatives. It identifies the ultimate motivation behind the ECB's cautious attitude in the early phases of the financial crisis, and its peculiar definition of price stability and attention for credit creation, as well as addressing the criticism that central banks were fundamentally unprepared to head off a major financial cataclysm as they were wedded to a deficient economic paradigm which made them blind to financial risks. It also shows that the ECB's unconventional low-interest policies have not compromised the position of financial intermediaries in the way commentators initially predicted they would. By condensing the facts and lessons of the first 20 years of the ECB, this volume will acquaint the reader with the structures and decision-making processes behind the complex, often controversial, crisis measures that were taken during some of the toughest economic challenges in the history of modern Europe, and provide them with fresh ex-post analysis on their effect on the real economy and inflation.

This is the first book to provide a full and dispassionate account of the politics and economics of the Eurozone crisis, focusing on the interlinked origins and impacts of the Euro-Zone crisis and the policy responses to it. The book is distinguished from existing research by its avoidance (and rejection) of the too-often simplistic analysis that has characterized political, media and regrettably some academic coverage, and by its attempt to escape from the tyranny of day-to-day events and short-term developments. Each of the contributors identifies an important question and undertakes a careful empirical, theoretically-informed analysis that produces novel perspectives. Together they seek to balance many of the existing accounts that have rushed to sometimes unwarranted conclusions, concerning, for example, the locus of institutional power in European crisis-management; the power and centrality of particular member states, notably Germany which has been attributed with 'hegemonic' status; the supposed entrapment of EU policy makers by an 'austerity ideology'; and the deep flaws that apparently afflict the solutions to the crisis put painstakingly in place, such as Banking Union. While it will be some time before the EU can put the crisis behind it, and the dust finally settles on the revised institutional system that emerges, The Political and Economic Dynamics of the Eurozone Crisis marks an important step towards a considered, reflective analysis of the tumultuous events and developments of the crisis period.