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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: 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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    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 1-14, January.

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    Keywords

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