The European Central Bank (ECB) recently became engaged in macro-prudential policies and the micro-prudential supervision of the largest Euro area banks. These new tasks should help complete financial integration, and make the Euro area more resilient to financial instability risks. However, the...

This paper develops a model to interpret the 2012 eurozone crisis and the ECB's policy response. In the model, bank lending is distorted by debt overhang, banks hold sovereign bonds, and the government guarantees the bailout of bank creditors. A self-fulfilling pessimistic view of the economy...

The Eurozone's reaction to the economic crisis beginning in late 2008 involved both efforts to mitigate the arbitrarily destructive effects of markets and vigorous pursuit of policies aimed at austerity and deflation. To explain this paradoxical outcome, this paper builds on Karl Polanyi's...

This paper develops a model to interpret the 2012 eurozone crisis and the ECB's policy response. In the model, bank lending is distorted by debt overhang, banks hold sovereign bonds, and the government guarantees the bailout of bank creditors. A self-fulfilling pessimistic view of the economy...

The European crisis came to an end when first political leaders and then the European Central Bank promised to do whatever it takes to safeguard the euro. Specifically they committed to create a European banking union and to buy unlimited amounts of sovereign debt in distressed markets for...