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THE EUROPEAN CRISIS AND THE ROLE OF THE FINANCIAL SYSTEM

 

Vítor Constâncio

European Central Bank

  

ABSTRACT

The paper aims to provide a deep rationale for banking union in the Euro Area. It shows that the banking sectors of core and peripheral countries were responsible for financing the credit boom that created the imbalances and vulnerabilities that later were at the centre of the crisis. The increase of debt ratios in the periphery until 2007 was more significant for the private sector than for the public sector. The crisis has been as much a banking crisis as a sovereign debt crisis and to avoid similar future risks a European Supervisor and a Resolution Authority are essential.

 

Keywords: European crisis, banking union, fiscal and macroeconomic imbalances

JEL Classification: H63, E52, F36, G01

 

Acknowledgements:  The views expressed in this paper are those of the author and do not necessarily reflect the views of the European Central Bank.

 

 

Correspondence:

Vítor Constâncio

European Central Bank

Kaiserstrasse 29

60311 Frankfurt am Main

Germany



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