DP13522 The Euro Crisis in the Mirror of the EMS

Author(s): Giancarlo Corsetti, Barry Eichengreen, Galina B Hale, Eric Tallmann
Publication Date: February 2019
Keyword(s): Backstop, Currency devaluation, financial crises, Sovereign and banking risk
JEL(s): E63, F45, G01, N14
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13522

Why was recovery from the euro area crisis delayed for a decade? The explanation lies in the absence of credible and timely policies to backstop financial intermediaries and sovereign debt markets. In this paper we add light and color to this analysis, contrasting recent experience with the 1992-3 crisis in the European Monetary System, when national central banks and treasuries more successfully provided this backstop. In the more recent episode, the incomplete development of the euro area constrained the ability of the ECB and other European institutions to do likewise.