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Financial Fragility in the Current European crisis

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  • Tropeano, D.

Abstract

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.

Suggested Citation

  • Tropeano, D., 2013. "Financial Fragility in the Current European crisis," CITYPERC Working Paper Series 2013-09, Department of International Politics, City University London.
    • Handle: RePEc:dip:dpaper:2013-09
    as

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    File URL: https://openaccess.city.ac.uk/id/eprint/2160/1/CITYPERC_WPS_2013_09.pdf
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    References listed on IDEAS

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    1. 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.
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    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. 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 and Oxford Review of Economic Policy Limited, vol. 19(1), pages 180-213.
    8. Domenica Tropeano, 2010. "The Current Financial Crisis, Monetary Policy, and Minsky's Structural Instability Hypothesis," International Journal of Political Economy, Taylor & Francis Journals, vol. 39(2), pages 41-57.
    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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    Cited by:

    1. Chun-Peng Zhang & Rong Kang & Chen Feng, 2016. "Financial Vulnerability, Capital Shocks and Economic Growth: Evidence from China (2005-2014)," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 2(1), pages 23-31.
    2. Nicholas Apergis, 2019. "Financial Vulnerability And Income Inequality: New Evidence From Oecd Countries," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 21(3), pages 395-408, January.
    3. repec:idn:journl:v:21:y:2019:i:3f:p:1-14 is not listed on IDEAS

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    Keywords

    financial fragility; Minsky; European financial system; feedback loops; regulation; thwarting policies;
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