Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

By contrast, the lack of comprehensive recapitalization of Europe’s wounded banking system was an omission that marks one of the fundamental turning points in the crisis. With the help of low-interest loans from Trichet’s ECB, many banks resorted to the makeshift of pumping up their profits by buying higher-yielding government debt. But the failure to build new capital would leave the European banks in no position to absorb any further shocks. While the United States began to stabilize, in Europe the banking crisis of 2008 would merge a year later with a new crisis: a panic in the eurozone public debt market. The connecting thread between the crisis of subprime and the crisis of the eurozone was the fragility of Europe’s bank balance sheets. Back to back, the combination of the two crises would mark one of the most significant inflections in European economic history since 1945. It would shake Europe’s politics to its foundations. It would open a stark divide within the Atlantic economy between Europe and America, and it would pose a profound challenge to transatlantic relations.