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

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    1. 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.
    2. 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.
    3. Éric Tymoigne, 2011. "Measuring Macroprudential Risk: Financial Fragility Indexes," Economics Working Paper Archive wp_654, Levy Economics Institute.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. Domenica Tropeano, 2011. "Financial Regulation After the Crisis," International Journal of Political Economy, Taylor & Francis Journals, vol. 40(2), pages 45-60.
    9. 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.
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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, November.

    More about this item

    Keywords

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

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