Edited by Matthias Haentjens and Bob Wessels
Chapter 8: The European Stability Mechanism: A crisis tool operating at two junctures
At times it seems as if our continent has been racked by one continuous crisis during the last years. On the news we could see our heads of state and government, ministers of finance and other politicians gathering in Brussels, sometimes in an ad hoc fashion due to unforeseen developments, in order to counteract what at first sight may appear as one and the same prolonged crisis. Yet, when we examine the agendas of such meetings and discover the topics that were being discussed, we see that there has not been a single crisis. In fact, Europe has been facing two crises. First, it was hit by the financial crisis that started in the US in 2007 and came to affect Europe over the course of 2008. Then, late 2009, it had to face the sovereign debt crisis when for several states in the euro area’s periphery it became increasingly difficult to (re)finance their debts on the markets. Although these two crises are different in nature, they are closely related. They even reinforce each other. In the Union, states are still primarily the ones taking responsibility for the rescue of banks in their jurisdictions. This makes them vulnerable to significant deteriorations of their debt positions when they have to save troubled banks. Ireland forms a case in point. In 2007, before the start of the financial crisis, it recorded a debt of 24.9 per cent to GDP.
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