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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 6: German financialization, the global financial crisis, and the eurozone crisis

Liberalization, Integration, and Asymmetric State Power

Nina Eichacker

Extract

This chapter examines how German financialization and input on the eurozone’s financial architecture promoted those imbalances, increased European systemic risk, and facilitated the onset of Europe’s subsequent crises. It argues that the increase in German financial sector competition encouraged those banks’ increase in securitization and participation in global capital markets, as well as German policy-makers’ support for financial liberalization embedded in the Maastricht Treaty. Financial liberalization of the eurozone created a new marketplace for German financial institutions, which increased the risk of crisis as current accounts diverged between core states like Germany and peripheral states like Greece. Once global financial crisis ensued in 2008, German losses on international securitized assets prompted a retrenchment of domestic and international lending, paving the way for the eurozone’s sovereign debt crisis. Re-examining the role of financial liberalization in facilitating German and European financial crises may prevent the eurozone from repeating these experiences in the future, at significant domestic, European, and global cost.

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