Sayek, S. & Taskin, F. (2014) “Lessons from history for the European Financial Crisis“, VoxEU Organisation, 05 July.
The European Monetary Union is unprecedented, but the Eurozone Crisis is not. This column draws upon the experiences of previous banking crises, and compares the Eurozone Crisis countries. Like Japan before the 1992 crisis, Spain and Ireland had property bubbles fuelled by domestic credit. The Greek crisis is very distinct from crises in other Eurozone countries, so a one-size-fits-all policy would be inappropriate. The duration and severity of past crises suggest the road ahead will continue to be very rough.
As of July 2014, we continue to debate whether the European economy is out of the woods. The effectiveness of policies and the prospects of full recovery are under scrutiny. The unique nature of Europe’s monetary union begets further questions of whether policies should be designed to resolve a single euro crisis, or whether they should be designed to resolve multiple European crises occurring simultaneously. A discussion of whether the sui generis European project has led to a sui generis set of financial crises would provide a framework for these policy discussions.
There is an incredible wealth of information and experience that could shed light on these questions – financial crises are not new. Countries all over the world have experienced economic crises in the past, sharing similar vulnerabilities prior to the crisis. So past crises could guide us in designing policies in Europe. Yet each crisis comes as a surprise, with its own distinctive characteristics. The latest of these crises, the euro crisis, is no different.1 Its distinctive characteristics are twofold:
Relevant posts:
- Véron, Ν. (2014) “Euro crisis turning point: Two years of Banking Union – Europe’s leaders avoided their usual muddling-through complacency to do something radical—and it worked!“, Bruegel Institute, 30 June.
- Mody, A. (2014) “In response: Aligning national interests in Europe’s monetary union – answering comments on my Opinion ‘Europe has wasted a good crisis‘”, Bruegel Institute, 01 July.
- Gordon, N. J. & Ringe, G. (2014) “How to save bank resolution in the European banking union“, VoxEU Organisation, 30 April.