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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 7: Icelandic and Irish financial liberalization, crisis, and aftermath

Liberalization, Integration, and Asymmetric State Power

Nina Eichacker

Extract

This chapter discusses the similarities and differences in the process and consequences of Icelandic and Irish financial liberalization and the ensuing financial crises of 2008 and beyond. It argues that rapid financial liberalization and booms in lending, investment banking activity, and other forms of financial intermediation in Iceland and Ireland destabilized those countries financial systems and economies, despite apparently encouraging growth trends in both countries between 2000 and the crisis in 2008. The aftermaths of the financial crises – both the global financial crisis and the eurozone crisis – have demonstrated the importance of more comprehensive growth policies, as well as the importance of national allies when responding to a crisis with international dimensions. It also identifies finance-led growth as a destabilizing force on the European stage, with disparate winners and losers, the EMU’s inadequate commitment to regional growth and recovery, and future risks from under-regulated finance.

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