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Financial Underpinnings of Europe’s Financial Crisis

Liberalization, Integration, and Asymmetric State Power

Nina Eichacker

This book analyzes how financial liberalization affected the development of the financial crisis in Europe, with particular attention given to the ways in which power asymmetries within Western Europe facilitated financial liberalization and distributed the costs and gains from it. The author combines institutional narrative analysis with empirical surveys and econometrics, as well as country-level studies of financial liberalization and its consequences before and after the 2008 Global Financial Crisis.
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Chapter 4: Financial liberalization and the onset of financial crisis in Western Europe between 1983 and 2011

Liberalization, Integration, and Asymmetric State Power

Nina Eichacker

Extract

This chapter argues that financial liberalization played a significant role in destabilizing Western European economies since the financial crisis of 2008. This process owes much to changes in the financial governance of Western Europe in the late twentieth century. This contrasts with the conventional story that the eurozone crisis is primarily due to peripheral countries’ excessive government spending or the German government’s neomercantilist policies. The chapter shows a robust and statistically significant positive correlation between gross locational capital flows over GDP and the onset of financial crisis, using linear probability models and logit regressions, providing evidence for the hypotheses.

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