Handbooks of Research on International Political Economy series
Edited by Anthony Payne and Nicola Phillips
Chapter 8: The governance of the global financial crisis in the Eurozone
This chapter focuses on the governance of global financial crises in a rapidly changing context. The ongoing nature of the current financial turmoil and great recession, most marked in the developed economies, renders any conclusive analysis difficult. The chapter will use the latest Eurozone phase of the contemporary global financial crisis as a case to illustrate the problems of the current system of crisis management and work-out, with implications for the reform process that is under way. One may begin by distinguishing nominally between two sorts of crises: (1) financial market and/or banking sector crises that (may) remain largely a private financial sector phenomenon but, if systemic in nature, can eventually threaten the general stability of the macroeconomy; and (2) currency-cum-sovereign debt crises that may arise from macroeconomic imbalances or exchange rate misalignment and/or government debt problems and that severely constrain the access of entire national economies to financial flows for governments and the private sector alike. In reality, the two are highly likely to be interlinked and the one may give rise to the other via spillover and market contagion. Recognising this linkage has often seen the combination dubbed a 'twin crisis' (Kaminsky and Reinhart 1999; Bordo et al. 2001). For an example of these interlinkages, one need look no further than the crisis that broke out in 2007 and was far from being resolved at the time of writing in 2013.
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