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The Creation of Euro Area Financial Safety Nets

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The Creation of Euro Area Financial Safety Nets

Bruegel,

5 min read
5 take-aways
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What's inside?

A contradiction beats at the euro zone’s heart: can it instill confidence while limiting member states’ liability?

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Editorial Rating

8

Recommendation

The European Union has lurched from crisis to cure and back to crisis again, without seeming to resolve its prevalent institutional shortcomings. The measures taken to date are undoubtedly insufficient for the long-term stability of the euro zone. Scholars Michiel Bijlsma and Shahin Vallee tread on now-familiar ground in their worthwhile summary of the situation at year-end 2012 as they outline the need for political and economic agreement on reform. They also provide solid recommendations for the way forward. getAbstract recommends their insights to policy makers, executives and observers involved in the euro scene.

Summary

Before the 2010 onset of the Greek crisis, the architects of the European Union had assumed their monetary alliance would preclude economic crises, and that national monitoring, financial industry self-regulation and “well-diversified banking groups” would be enough to safeguard the banking system. Thus, when European authorities devised their joint agreements, they made no serious attempt to create safety nets on a supranational level. In fact, they inserted a “no bail-out” clause in the Maastricht Treaty that later hampered their efforts to deal with the crisis in Greece.

Because...

About the Authors

Michiel Bijlsma and Shahin Vallee are visiting fellows at Bruegel, an economic think tank based in Brussels.

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