Opinion | European Stability Mechanism: a reassuring safety net ready to act in any future time of financial crises
An insight into how the world might cope, just that little bit better, if financial crisis strikes again
Europe’s sovereign debt crisis was a stark reminder that modern market economies can still be shaken by such highly disruptive events.
The period of upheaval, which is now well behind us, was preceded by what some might argue was an earlier crisis of similar scale: the collapse of US subprime mortgage markets.
And while Asia survived these two crises relatively unscathed, the continent too has known periods of severe financial turmoil. Everybody still vividly remembers the Asian financial crisis of 1997.
Financial crises are traumatic events not just because of their tremendous economic cost. They damage people’s trust in the financial system and governments. It may take many years before confidence returns.
How this unfolds depends on the economic and structural causes of the crisis, which are different in each case. Ultimately what counts are the lessons that policymakers draw from the events, and the measures they put in place to reduce the chance of a next crisis.
The euro area has pushed through a number of important innovations since its most recent crisis. This has put the currency union on a stronger footing, both in the area of policy coordination as well as in its institutional architecture.