Inside European Financial Instability: Main Causes and Possible Solutions

Giulia Bonamini, Vincenzo D'Apice and Antonio Forte

Economic Notes, 2015, vol. 44, issue 1, 123-149

Abstract: type="main">

Since 2010, some European countries have been going through a difficult period of economic and financial fragility. The aim of this paper is to review the main causes of European financial instability. Since the analysis reflects an important interconnection between public debt and banking stability, we empirically investigate this interaction through a Granger causality analysis. Testing the possible existence of Granger causal relationships between sovereign debt and banking stability allows us to identify countries in which a sovereign crisis caused a banking crisis and vice versa. Finally, we describe possible solutions in order to exit from the crisis and the economic policy implications.

Date: 2015
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