Europäische Staatsschuldenkrise, Lender of last resort und Bankenunion / European sovereign debt crisis, lender of last resort and banking union

Smeets Heinz-Dieter and Schmid Anita

ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, 2014, vol. 65, issue 1, 47-74

Abstract: Starting from the roots of the sovereign debt crisis, this article first explains the function of the Lender of Last Resort (LOLR) and, afterwards, shows how supranational institutions, such as the ESM and the ESFS, on the one hand, as well as the ECB on the other hand, acted as a LOLR vis-à-vis European banks and member states during the current crises. However, interventions by a LOLR do, again, evoke problems which consequences and solutions are discussed next: so, the resulting collective responsibility causes crisis-induced costs to be borne by the general public in the form of higher taxes or increasing inflation. Moreover, economic agents are faced with misguiding incentives that favour the emergence of new crises in the future. Therefore, the recent establishment of a European Banking Union takes the centre of the new arrangements that were introduced to solve the problem of resposibility and to break the vicious circle between banking and sovereign debt crises. However, in order to prevent a further systemic crisis, additional measures are proposed to even enhance the stability of the European banking system. Important suggestions are to introduce adequate capital cushions as well as to revise the preferential treatment given by prudential bank regulations to sovereign exposures. Moreover, it is necessary to establish a sovereign insolvency regime in order to credibly exclude a (further) bail-out.

Date: 2014
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DOI: 10.1515/ordo-2014-0105

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