Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/163505
Authors: 
Gnan, Ernest
Nowotny, Ewald
Simor, András
Begg, Iain
Bosomworth, Andrew
Panizza, Ugo
Bartsch, Elga
Kraemer, Moritz
Year of Publication: 
2013
Series/Report no.: 
SUERF Studies 2013/1
Abstract: 
The current financial, economic and fiscal crisis is among other things characterised by complex interrelations between financial, fiscal, macroeconomic and political instability. One instability breeds another, with feedback loops generating self-reinforcing adverse cycles: The financial crisis triggered the ‘Great Recession’. Countermeasures by governments – to save banks and bolster up aggregate demand – ultimately jeopardized fiscal sustainability and bred the fiscal crisis. The latter in turn destabilised sovereign bond markets and banking systems in several countries. Political instability resulted from the substantial fiscal consolidations forced upon governments in the light of threatening or actual loss of access to financial market financing, and the accompanying deep recessions and sharp increase in unemployment. Political instability in turn further erodes economic and financial market confidence, thus worsening short and long-term economic and fiscal prospects, and further aggravating financial instability. In the EU and more specifically the Euro Area, multiple channels of spillovers and contagion turn the problems from purely national phenomena to ones of EU-wide and ultimately even global scope. Thus, apart from national political processes, Euro Area and EU-wide economic governance has been criticized for not addressing reform needs decisively, thus prolonging and deepening the cycle of instability.
Subjects: 
Financial stability
sovereign bonds
political stability
Euro Area
contagion
spillovers
crisis management
monetary policy
liquidity
fiscal consolidation
supervision
governance
banking union
sovereign ratings
JEL: 
E5
E58
E62
E63
F34
G15
G2
ISBN: 
978-3-902109-66-8
Document Type: 
Proceedings

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