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The Sovereign Debt Crisis in Europe, Save Banks Not States


  • Hans-Bernd Schäfer


The European central bank is a bank of banks but not a bank of states. This reduces the capabilities of member states to finance deficits. The role of the central bank to cope with the debt crises is institutionally more limited than in most other Western countries. The European Stability Mechanism has not enough financial power to bail out all distressed countries in the Eurozone. Eurobonds could increase lending capacities but would require a change of the European treaty, which is not in sight. They violate the no bail out clause of Art.125 of the Treaty on the Functioning of the European Union. The policy option is therefore debt restructuring of distressed countries and a bailout of financial institutions to avoid conflagration. This option would also shift some of the burden to creditors outside the Eurozone rather than to shift all risk on the people in solvent countries within the Eurozone.

Suggested Citation

  • Hans-Bernd Schäfer, 2012. "The Sovereign Debt Crisis in Europe, Save Banks Not States," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 9(2), pages 179-195, August.
  • Handle: RePEc:liu:liucej:v:9:y:2012:i:2:p:179-195

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    References listed on IDEAS

    1. Jakob de Haan & Helge Berger & David-Jan Jansen, 2004. "Why has the Stability and Growth Pact Failed?," International Finance, Wiley Blackwell, vol. 7(2), pages 235-260, July.
    2. Hans-Werner Sinn, 2006. "The Pathological Export Boom and the Bazaar Effect: How to Solve the German Puzzle," The World Economy, Wiley Blackwell, vol. 29(9), pages 1157-1175, September.
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    Cited by:

    1. Enrico Marelli & Marcello Signorelli, 2015. "Convergence, Crisis and Unemployment in Europe: The Need for Innovative Policies," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 17(2), pages 5-56, December.
    2. Basu, Kaushik, 2014. "Fiscal policy as an instrument of investment and growth," Policy Research Working Paper Series 6850, The World Bank.

    More about this item


    Euro; European debt crisis; European Central Bank; European Stability Mechanism; Debt restructuring; Sovereign insolvency; no bail out clause; Eurobonds;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law


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