Financial Fragility in the Current European crisis

Domenica Tropeano

CITYPERC Working Paper Series from Department of International Politics, City University London

Abstract: The paper argues that the European financial system in the years following the great financial crisis started in 2007 has become increasingly fragile. Minsky’s notion of fragility, on which it is based, is related to history, policy and institutions. In the current European environment, fragility depends on the rise of shadow banks’ assets, the expansion of derivatives and the changes in financial regulation. All these elements have jointly triggered several feedback loops. In Minsky’s opinion, policies should have the scope of thwarting self-enforcing feedback loops. Yet the policies that have been implemented so far seem to have produced the opposite effects. They have created new feedback loops that nurture fragility again. This outcome, however, is not surprising for policies may change initial conditions and have unintended consequences, as Minsky has taught us since a long time.

Keywords: financial fragility; Minsky; European financial system; feedback loops; regulation; thwarting policies (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cba and nep-pke
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:dip:dpaper:2013-09

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