The Crisis in the Euro Zone : Did the Euro Contribute to the Evolution of the Crisis?
The simmering sovereign debt crisis in the Euro Zone represents a looming threat to the recovery of the world economy and could lead to a renewed global financial crisis. The purpose of this paper is to analyze the root causes of the crisis in Euro...
| Main Authors: | , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2012
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2012/08/16607788/crisis-euro-zone-euro-contribute-evolution-crisis http://hdl.handle.net/10986/12017 |
| id |
okr-10986-12017 |
|---|---|
| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ACCOUNTING ADVERSE SHOCKS AGGREGATE DEMAND AMOUNT OF CREDIT ANNUAL GROWTH ASSET CLASSES ASSET PRICES BAILOUT BALANCE OF PAYMENTS BALANCE OF PAYMENTS CRISIS BALANCE SHEET BALANCE SHEETS BANK BORROWING BANK DEPOSITS BANK FOR INTERNATIONAL SETTLEMENTS BANK HOLDINGS BANK LENDING BANK LIQUIDITY BANK POLICY BANKING CRISIS BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BASIS POINTS BILATERAL TRADE BILLS BOND BONDS BORROWING COSTS BUDGET DEFICIT BUDGET DEFICITS BUSINESS CYCLE CAPITAL ACCOUNT CAPITAL ACCOUNT LIBERALIZATION CAPITAL ACCOUNT TRANSACTIONS CAPITAL CONTROLS CAPITAL FLOWS CAPITAL INFLOWS CAPITAL REQUIREMENTS CENTRAL BANK COMMERCIAL BANK COMMERCIAL BANK LOANS COMMERCIAL BANKS COMMON CURRENCY COMPETITIVE EDGE CONSOLIDATION CORE INFLATION CREDIBILITY CREDIT BOOM CREDIT BOOMS CREDIT DERIVATIVES CREDIT EXPANSION CREDIT EXPOSURE CREDIT QUALITY CREDIT WORTHINESS CURRENCY CURRENCY RISK CURRENCY UNION CURRENCY UNIONS CURRENT ACCOUNT CURRENT ACCOUNT BALANCE CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT DEFICITS CURRENT ACCOUNT IMBALANCES CURRENT ACCOUNT POSITIONS CURRENT ACCOUNT SURPLUS DEBT BURDEN DEBT CRISIS DEBT SUSTAINABILITY DEBTS DEFAULTS DEPOSIT DEPOSIT MONEY BANKS DERIVATIVES DISPOSABLE INCOME DOMESTIC CONSUMPTION DOMESTIC DEMAND DUTCH DISEASE EARNING ASSETS ECONOMIC CONTRACTION ECONOMIC CRISIS ECONOMIC GROWTH ECONOMIC POLICY EMERGING MARKETS EQUITY MARKET EURO ZONE EUROPEAN CENTRAL BANK EXCHANGE RATE EXCHANGE RATE FLUCTUATIONS EXCHANGE RATE RISK EXPENDITURE INCREASES EXPORT COMPETITIVENESS EXPORT GROWTH EXPORT MARKET EXPORT PERFORMANCE EXPORTER EXPOSURES EXTERNAL BALANCES EXTERNAL COMPETITIVENESS EXTERNAL DEBT EXTERNAL INDEBTEDNESS EXTERNAL POSITION FINANCES FINANCIAL CONTAGION FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL FLOWS FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL INTEGRATION FINANCIAL LIBERALIZATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL OPENNESS FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STUDIES FINANCIAL SYSTEM FISCAL BALANCES FISCAL DEFICIT FISCAL DEFICITS FISCAL DISCIPLINE FISCAL POLICIES FISCAL POLICY FISCAL POSITION FOREIGN ASSETS FOREIGN BANK FULL LIBERALIZATION GOVERNMENT DEBT GOVERNMENT DEFICIT GOVERNMENT DEFICITS GOVERNMENT EXPENDITURE GOVERNMENT REVENUE GOVERNMENT SPENDING GROWTH PERFORMANCE GROWTH RATE GROWTH RATES HOLDING HOUSING HOUSING PRICES INDEBTED COUNTRIES INDEBTEDNESS INFLATION INFLATION RATES INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL ECONOMICS INTERNATIONAL INVESTMENT INTERNATIONAL SETTLEMENTS INTERNATIONAL TRADE JUDICIAL INDEPENDENCE LENDER LEVERAGE LEVY LIQUIDITY LIQUIDITY RISKS LOAN LONG-TERM BOND YIELDS LOSS OF COMPETITIVENESS MARKET SHARE MARKET SHARES MARKETABLE SECURITIES MONETARY FUND MONETARY POLICY MONETARY UNION MORTGAGE MORTGAGE LOANS MORTGAGE MARKET MORTGAGE MARKETS NATIONAL CURRENCIES NON PERFORMING LOANS NONPERFORMING LOANS OPTIMUM CURRENCY AREAS POLITICAL ECONOMY POOR ASSET QUALITY PORTFOLIO PRICE INCREASES PRIVATE CONSUMPTION PRIVATE CREDIT PRIVATE INVESTMENT PRIVATE SECTOR BANKS PROFITABILITY PROPERTY INVESTMENT PUBLIC DEBT RATE OF RETURN REAL APPRECIATION REAL EFFECTIVE EXCHANGE RATE RECESSION REGULATORY AUTHORITIES RISK AVERSION RISK MANAGEMENT RISK MANAGEMENT TOOLS RISK PROFILE RISK TRANSFER SHARE OF ASSETS SHORT-TERM DEBT SINGLE CURRENCY SOLVENCY SOVEREIGN DEBT STAMP DUTIES STANDARD DEVIATION STOCK MARKET STRUCTURAL REFORMS SUPERVISION OF BANK SUPPLY OF CREDIT SURPLUSES TAX TAX INCREASES TRADE SURPLUS TRADE UNIONS WAGES WEALTH EFFECT WORLD ECONOMY |
| spellingShingle |
ACCOUNTING ADVERSE SHOCKS AGGREGATE DEMAND AMOUNT OF CREDIT ANNUAL GROWTH ASSET CLASSES ASSET PRICES BAILOUT BALANCE OF PAYMENTS BALANCE OF PAYMENTS CRISIS BALANCE SHEET BALANCE SHEETS BANK BORROWING BANK DEPOSITS BANK FOR INTERNATIONAL SETTLEMENTS BANK HOLDINGS BANK LENDING BANK LIQUIDITY BANK POLICY BANKING CRISIS BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BASIS POINTS BILATERAL TRADE BILLS BOND BONDS BORROWING COSTS BUDGET DEFICIT BUDGET DEFICITS BUSINESS CYCLE CAPITAL ACCOUNT CAPITAL ACCOUNT LIBERALIZATION CAPITAL ACCOUNT TRANSACTIONS CAPITAL CONTROLS CAPITAL FLOWS CAPITAL INFLOWS CAPITAL REQUIREMENTS CENTRAL BANK COMMERCIAL BANK COMMERCIAL BANK LOANS COMMERCIAL BANKS COMMON CURRENCY COMPETITIVE EDGE CONSOLIDATION CORE INFLATION CREDIBILITY CREDIT BOOM CREDIT BOOMS CREDIT DERIVATIVES CREDIT EXPANSION CREDIT EXPOSURE CREDIT QUALITY CREDIT WORTHINESS CURRENCY CURRENCY RISK CURRENCY UNION CURRENCY UNIONS CURRENT ACCOUNT CURRENT ACCOUNT BALANCE CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT DEFICITS CURRENT ACCOUNT IMBALANCES CURRENT ACCOUNT POSITIONS CURRENT ACCOUNT SURPLUS DEBT BURDEN DEBT CRISIS DEBT SUSTAINABILITY DEBTS DEFAULTS DEPOSIT DEPOSIT MONEY BANKS DERIVATIVES DISPOSABLE INCOME DOMESTIC CONSUMPTION DOMESTIC DEMAND DUTCH DISEASE EARNING ASSETS ECONOMIC CONTRACTION ECONOMIC CRISIS ECONOMIC GROWTH ECONOMIC POLICY EMERGING MARKETS EQUITY MARKET EURO ZONE EUROPEAN CENTRAL BANK EXCHANGE RATE EXCHANGE RATE FLUCTUATIONS EXCHANGE RATE RISK EXPENDITURE INCREASES EXPORT COMPETITIVENESS EXPORT GROWTH EXPORT MARKET EXPORT PERFORMANCE EXPORTER EXPOSURES EXTERNAL BALANCES EXTERNAL COMPETITIVENESS EXTERNAL DEBT EXTERNAL INDEBTEDNESS EXTERNAL POSITION FINANCES FINANCIAL CONTAGION FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL FLOWS FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL INTEGRATION FINANCIAL LIBERALIZATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL OPENNESS FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STUDIES FINANCIAL SYSTEM FISCAL BALANCES FISCAL DEFICIT FISCAL DEFICITS FISCAL DISCIPLINE FISCAL POLICIES FISCAL POLICY FISCAL POSITION FOREIGN ASSETS FOREIGN BANK FULL LIBERALIZATION GOVERNMENT DEBT GOVERNMENT DEFICIT GOVERNMENT DEFICITS GOVERNMENT EXPENDITURE GOVERNMENT REVENUE GOVERNMENT SPENDING GROWTH PERFORMANCE GROWTH RATE GROWTH RATES HOLDING HOUSING HOUSING PRICES INDEBTED COUNTRIES INDEBTEDNESS INFLATION INFLATION RATES INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL ECONOMICS INTERNATIONAL INVESTMENT INTERNATIONAL SETTLEMENTS INTERNATIONAL TRADE JUDICIAL INDEPENDENCE LENDER LEVERAGE LEVY LIQUIDITY LIQUIDITY RISKS LOAN LONG-TERM BOND YIELDS LOSS OF COMPETITIVENESS MARKET SHARE MARKET SHARES MARKETABLE SECURITIES MONETARY FUND MONETARY POLICY MONETARY UNION MORTGAGE MORTGAGE LOANS MORTGAGE MARKET MORTGAGE MARKETS NATIONAL CURRENCIES NON PERFORMING LOANS NONPERFORMING LOANS OPTIMUM CURRENCY AREAS POLITICAL ECONOMY POOR ASSET QUALITY PORTFOLIO PRICE INCREASES PRIVATE CONSUMPTION PRIVATE CREDIT PRIVATE INVESTMENT PRIVATE SECTOR BANKS PROFITABILITY PROPERTY INVESTMENT PUBLIC DEBT RATE OF RETURN REAL APPRECIATION REAL EFFECTIVE EXCHANGE RATE RECESSION REGULATORY AUTHORITIES RISK AVERSION RISK MANAGEMENT RISK MANAGEMENT TOOLS RISK PROFILE RISK TRANSFER SHARE OF ASSETS SHORT-TERM DEBT SINGLE CURRENCY SOLVENCY SOVEREIGN DEBT STAMP DUTIES STANDARD DEVIATION STOCK MARKET STRUCTURAL REFORMS SUPERVISION OF BANK SUPPLY OF CREDIT SURPLUSES TAX TAX INCREASES TRADE SURPLUS TRADE UNIONS WAGES WEALTH EFFECT WORLD ECONOMY Lin, Justin Yifu Treichel, Volker The Crisis in the Euro Zone : Did the Euro Contribute to the Evolution of the Crisis? |
| geographic_facet |
Europe and Central Asia |
| relation |
Policy Research Working Paper;6127 |
| description |
The simmering sovereign debt crisis in
the Euro Zone represents a looming threat to the recovery of
the world economy and could lead to a renewed global
financial crisis. The purpose of this paper is to analyze
the root causes of the crisis in Europe and assess the
extent to which it was driven by the global financial crisis
and by factors internal to Europe, notably the adoption of
the common currency. Adoption of the euro led to convergence
of interest rates in periphery countries to the levels in
core countries and, in combination with rising capital
inflows owing to greater financial integration, set off a
consumption and real estate boom in periphery countries,
leading to higher growth and increases in government revenue
and spending. The resulting real appreciation led to a loss
of competitiveness in periphery countries, adversely
affecting export performance and causing rising current
account imbalances. While the fiscal position remained
manageable before the crisis owing to rising revenue, the
recession brought about by the global financial crisis led
to the burst of real estate bubbles and a financial sector
crisis and to sharply increased budget deficits and worsened
debt indicators and triggered the sovereign debt crisis.
Core countries, in particular Germany, maintained a
competitive edge through wage restraint allowing them to
increase exports to periphery countries, while their banks
profited from increased lending to non-core countries. In
sum, the euro exacerbated intra-European imbalances whose
unsustainability became evident in the aftermath of the
global financial crisis and triggered the current sovereign
debt crisis. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Lin, Justin Yifu Treichel, Volker |
| author_facet |
Lin, Justin Yifu Treichel, Volker |
| author_sort |
Lin, Justin Yifu |
| title |
The Crisis in the Euro Zone : Did the Euro Contribute to the Evolution of the Crisis? |
| title_short |
The Crisis in the Euro Zone : Did the Euro Contribute to the Evolution of the Crisis? |
| title_full |
The Crisis in the Euro Zone : Did the Euro Contribute to the Evolution of the Crisis? |
| title_fullStr |
The Crisis in the Euro Zone : Did the Euro Contribute to the Evolution of the Crisis? |
| title_full_unstemmed |
The Crisis in the Euro Zone : Did the Euro Contribute to the Evolution of the Crisis? |
| title_sort |
crisis in the euro zone : did the euro contribute to the evolution of the crisis? |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2012/08/16607788/crisis-euro-zone-euro-contribute-evolution-crisis http://hdl.handle.net/10986/12017 |
| _version_ |
1764418720738836480 |
| spelling |
okr-10986-120172021-04-23T14:02:58Z The Crisis in the Euro Zone : Did the Euro Contribute to the Evolution of the Crisis? Lin, Justin Yifu Treichel, Volker ACCOUNTING ADVERSE SHOCKS AGGREGATE DEMAND AMOUNT OF CREDIT ANNUAL GROWTH ASSET CLASSES ASSET PRICES BAILOUT BALANCE OF PAYMENTS BALANCE OF PAYMENTS CRISIS BALANCE SHEET BALANCE SHEETS BANK BORROWING BANK DEPOSITS BANK FOR INTERNATIONAL SETTLEMENTS BANK HOLDINGS BANK LENDING BANK LIQUIDITY BANK POLICY BANKING CRISIS BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BASIS POINTS BILATERAL TRADE BILLS BOND BONDS BORROWING COSTS BUDGET DEFICIT BUDGET DEFICITS BUSINESS CYCLE CAPITAL ACCOUNT CAPITAL ACCOUNT LIBERALIZATION CAPITAL ACCOUNT TRANSACTIONS CAPITAL CONTROLS CAPITAL FLOWS CAPITAL INFLOWS CAPITAL REQUIREMENTS CENTRAL BANK COMMERCIAL BANK COMMERCIAL BANK LOANS COMMERCIAL BANKS COMMON CURRENCY COMPETITIVE EDGE CONSOLIDATION CORE INFLATION CREDIBILITY CREDIT BOOM CREDIT BOOMS CREDIT DERIVATIVES CREDIT EXPANSION CREDIT EXPOSURE CREDIT QUALITY CREDIT WORTHINESS CURRENCY CURRENCY RISK CURRENCY UNION CURRENCY UNIONS CURRENT ACCOUNT CURRENT ACCOUNT BALANCE CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT DEFICITS CURRENT ACCOUNT IMBALANCES CURRENT ACCOUNT POSITIONS CURRENT ACCOUNT SURPLUS DEBT BURDEN DEBT CRISIS DEBT SUSTAINABILITY DEBTS DEFAULTS DEPOSIT DEPOSIT MONEY BANKS DERIVATIVES DISPOSABLE INCOME DOMESTIC CONSUMPTION DOMESTIC DEMAND DUTCH DISEASE EARNING ASSETS ECONOMIC CONTRACTION ECONOMIC CRISIS ECONOMIC GROWTH ECONOMIC POLICY EMERGING MARKETS EQUITY MARKET EURO ZONE EUROPEAN CENTRAL BANK EXCHANGE RATE EXCHANGE RATE FLUCTUATIONS EXCHANGE RATE RISK EXPENDITURE INCREASES EXPORT COMPETITIVENESS EXPORT GROWTH EXPORT MARKET EXPORT PERFORMANCE EXPORTER EXPOSURES EXTERNAL BALANCES EXTERNAL COMPETITIVENESS EXTERNAL DEBT EXTERNAL INDEBTEDNESS EXTERNAL POSITION FINANCES FINANCIAL CONTAGION FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL FLOWS FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL INTEGRATION FINANCIAL LIBERALIZATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL OPENNESS FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STUDIES FINANCIAL SYSTEM FISCAL BALANCES FISCAL DEFICIT FISCAL DEFICITS FISCAL DISCIPLINE FISCAL POLICIES FISCAL POLICY FISCAL POSITION FOREIGN ASSETS FOREIGN BANK FULL LIBERALIZATION GOVERNMENT DEBT GOVERNMENT DEFICIT GOVERNMENT DEFICITS GOVERNMENT EXPENDITURE GOVERNMENT REVENUE GOVERNMENT SPENDING GROWTH PERFORMANCE GROWTH RATE GROWTH RATES HOLDING HOUSING HOUSING PRICES INDEBTED COUNTRIES INDEBTEDNESS INFLATION INFLATION RATES INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL ECONOMICS INTERNATIONAL INVESTMENT INTERNATIONAL SETTLEMENTS INTERNATIONAL TRADE JUDICIAL INDEPENDENCE LENDER LEVERAGE LEVY LIQUIDITY LIQUIDITY RISKS LOAN LONG-TERM BOND YIELDS LOSS OF COMPETITIVENESS MARKET SHARE MARKET SHARES MARKETABLE SECURITIES MONETARY FUND MONETARY POLICY MONETARY UNION MORTGAGE MORTGAGE LOANS MORTGAGE MARKET MORTGAGE MARKETS NATIONAL CURRENCIES NON PERFORMING LOANS NONPERFORMING LOANS OPTIMUM CURRENCY AREAS POLITICAL ECONOMY POOR ASSET QUALITY PORTFOLIO PRICE INCREASES PRIVATE CONSUMPTION PRIVATE CREDIT PRIVATE INVESTMENT PRIVATE SECTOR BANKS PROFITABILITY PROPERTY INVESTMENT PUBLIC DEBT RATE OF RETURN REAL APPRECIATION REAL EFFECTIVE EXCHANGE RATE RECESSION REGULATORY AUTHORITIES RISK AVERSION RISK MANAGEMENT RISK MANAGEMENT TOOLS RISK PROFILE RISK TRANSFER SHARE OF ASSETS SHORT-TERM DEBT SINGLE CURRENCY SOLVENCY SOVEREIGN DEBT STAMP DUTIES STANDARD DEVIATION STOCK MARKET STRUCTURAL REFORMS SUPERVISION OF BANK SUPPLY OF CREDIT SURPLUSES TAX TAX INCREASES TRADE SURPLUS TRADE UNIONS WAGES WEALTH EFFECT WORLD ECONOMY The simmering sovereign debt crisis in the Euro Zone represents a looming threat to the recovery of the world economy and could lead to a renewed global financial crisis. The purpose of this paper is to analyze the root causes of the crisis in Europe and assess the extent to which it was driven by the global financial crisis and by factors internal to Europe, notably the adoption of the common currency. Adoption of the euro led to convergence of interest rates in periphery countries to the levels in core countries and, in combination with rising capital inflows owing to greater financial integration, set off a consumption and real estate boom in periphery countries, leading to higher growth and increases in government revenue and spending. The resulting real appreciation led to a loss of competitiveness in periphery countries, adversely affecting export performance and causing rising current account imbalances. While the fiscal position remained manageable before the crisis owing to rising revenue, the recession brought about by the global financial crisis led to the burst of real estate bubbles and a financial sector crisis and to sharply increased budget deficits and worsened debt indicators and triggered the sovereign debt crisis. Core countries, in particular Germany, maintained a competitive edge through wage restraint allowing them to increase exports to periphery countries, while their banks profited from increased lending to non-core countries. In sum, the euro exacerbated intra-European imbalances whose unsustainability became evident in the aftermath of the global financial crisis and triggered the current sovereign debt crisis. 2012-12-21T20:41:04Z 2012-12-21T20:41:04Z 2012-07 http://documents.worldbank.org/curated/en/2012/08/16607788/crisis-euro-zone-euro-contribute-evolution-crisis http://hdl.handle.net/10986/12017 English en_US Policy Research Working Paper;6127 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Europe and Central Asia |