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Financial Fragility in the Current European crisis

  • Tropeano, D.

The paper argues that the European financial system in the years following the great financial crisis started in 2007 has become increasingly fragile. Minsky’s notion of fragility, on which it is based, is related to history, policy and institutions. In the current European environment, fragility depends on the rise of shadow banks’ assets, the expansion of derivatives and the changes in financial regulation. All these elements have jointly triggered several feedback loops. In Minsky’s opinion, policies should have the scope of thwarting self-enforcing feedback loops. Yet the policies that have been implemented so far seem to have produced the opposite effects. They have created new feedback loops that nurture fragility again. This outcome, however, is not surprising for policies may change initial conditions and have unintended consequences, as Minsky has taught us since a long time.

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File URL: http://openaccess.city.ac.uk/2160/1/CITYPERC_WPS_2013_09.pdf
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Paper provided by Department of International Politics, City University London in its series CITYPERC Working Paper Series with number 2013-09.

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Date of creation: 2013
Date of revision:
Handle: RePEc:dip:dpaper:2013-09
Contact details of provider: Postal: Department of International Politics, Social Sciences Building, City University London, Whiskin Street, London, EC1R 0JD, United Kingdom
Phone: +44 (0)20 7040 8500
Web page: http://www.city.ac.uk/arts-social-sciences/international-politics/Email:


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  1. Domenica Tropeano, 2011. "Financial Regulation After the Crisis," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 40(2), pages 45-60, July.
  2. Domenica Tropeano, 2010. "The current financial crisis, monetary policy and Minsky's structural instability hypothesis," Working Papers 60-2010, Macerata University, Department of Finance and Economic Sciences, revised Jun 2010.
  3. Coudert, V. & Gex, M., 2010. "Credit default swap and bond markets: which leads the other?," Financial Stability Review, Banque de France, issue 14, pages 161-167, July.
  4. Philipp Hartmann & Angela Maddaloni & Simone Manganelli, 2003. "The Euro-area Financial System: Structure, Integration, and Policy Initiatives," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 180-213.
  5. Schmidt, Reinhard H. & Hackethal, Andreas & Tyrell, Marcel, 1999. "Disintermediation and the Role of Banks in Europe: An International Comparison," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 36-67, January.
  6. Arce, Oscar & Mayordomo, Sergio & Peña, Juan Ignacio, 2013. "Credit-risk valuation in the sovereign CDS and bonds markets: Evidence from the euro area crisis," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 124-145.
  7. Gary A. Dymski, 2010. "Why the subprime crisis is different: a Minskyian approach," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 239-255, March.
  8. Éric Tymoigne, 2011. "Measuring Macroprudential Risk: Financial Fragility Indexes," Economics Working Paper Archive wp_654, Levy Economics Institute.
  9. Jan Kregel, 2010. "No Going Back: Why We Cannot Restore Glass-Steagall's Segregation of Banking and Finance," Economics Public Policy Brief Archive ppb_107, Levy Economics Institute.
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