The Eurozone Crisis Quotes

“Europe’s lingering economic malaise is not just a slow recovery. Mainstream forecasts predict that hundreds of millions of Europeans will miss out on the opportunities that past generations took for granted. The crisis-burden falls hardest on Europe’s youth whose lifetime earning-profiles have already suffered. Money, however, is not the main issue. This is no longer just an economic crisis. The economic hardship has fuelled populism and political extremism. In a setting that is more unstable than any time since the 1930s, nationalistic, anti-European rhetoric is becoming mainstream. Political parties argue for breaking up the Eurozone and the EU. It is not inconceivable that far-right or far-left populist parties could soon hold or share power in several EU nations. Many influential observers recognise the bind in which Europe finds itself. A broad gamut of useful solutions have been suggested. Yet existing rules, institutions and political bargains prevent effective action. Policymakers seem to have painted themselves into a corner.”
― Richard Baldwin, The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions

“Any country with a large public debt, and with no access to monetary financing, could be subject to a run on its debt, even if it was solvent in the long run. In other words, a liquidity crisis triggered by lack of confidence could push into insolvency not only banks, but also sovereigns with high public debts and no access to the printing press.”
― Richard Baldwin, The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions

“The problem, as Daniel Gros writes is that “In Europe the banks and the sovereign are usually so closely linked that one cannot survive without the other.” As discussed above in the context of the doom loop, EZ national governments are the ultimate guarantor of their banks, but the banks are key holders of public debt. As a result: “insolvency of a government would also wipe out the capital of the banks and bankrupt them as well. But an insolvent government would no longer be able to save its banks.”
― Richard Baldwin, The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions

“When the Eurozone was started, a fundamental stabilising force that existed at the level of the member-states was taken away from these countries. This is the lender of last resort function of the central bank.” EZ governments, “could no longer guarantee that the cash would always be available to roll over the government debt.” Unlike stand-alone nations, EZ members did not have “the power to force the central bank to provide liquidity in times of crisis.” This created a fundamental fragility in the monetary union. Without a buyer-of-last-resort, shocks that provide re-funding difficulties in banks or nations can trigger self-fulfilling liquidity crises that degenerate into solvency problems.”
― Richard Baldwin, The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions

“euro denominated borrowing was akin to foreign currency debt in traditional sudden stop crises. The natural lender of last resort, the ECB, was explicitly forbidden from playing the role. This ruled out one of the classic ways out of avoiding government default – having the central bank print the money needed to service the debt. The predominance of bank financing was another amplifier of problems. European banks were thinly capitalised and extremely large relative to the countries’ GDP. They were so large that they had to be saved, but their size also created a ‘double drowning’ scenario. This is exactly what happened in Ireland. In what might be called a tragic double-drowning scenario, Ireland’s banking system went down first, and the government of Ireland went down trying to save it.”
― Richard Baldwin, The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions

“the EZ crisis should not be thought of as a sovereign debt crisis. The nations that ended up with bailouts were not those with the highest debt-to-GDP ratios. Belgium and Italy sailed into the crisis with public debts of about 100% of GDP and yet did not end up with IMF programmes, while Ireland and Spain, with ratios of just 40%, (admittedly kept artificially low by large tax revenues associated with the real estate bubble) needed bailouts. The key was foreign borrowing. Many of the nations that ran current account deficits – and thus were relying of foreign lending – suffered; none of those running current account surpluses were hit.”
― Richard Baldwin, The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions