ECB: The Entire Eurozone Financial Crisis In 9 Slides

ECB, european central bank

Photo: flickr / jurjen_nl

With massive capital outflows, yawning yield spreads, and failing banks, it seems clear that the European banking system is in crisis.In a speech today, ECB Executive Board member Peter Praet describes how the sovereign debt crisis has revealed an unstable and fragmented system that needs drastic reform. 

He argued that ECB liquidity and individual country bailouts, like Spain’s efforts with Bankia, can shore things up in the short run, but won’t be enough. 

Praet believes that “more is needed for the euro area to break the link between fiscal imbalances, financial fragmentation and financial instability.” He suggests that Europe move towards a “financial union” with a single authority to supervise and resolve large cross-border institutions, and common deposit insurance. The crisis might be just the thing to pressure leaders into needed actions.  

Interbank lending rates between countries converged quickly after the euro was introduced

Bond yields were almost the same across the Eurozone, despite fiscal differences

Interest rates on private sector loans converged as well

Cross border loan growth lagged somewhat

Rates diverged sharply after the crisis

Credit and country risks are priced in post-crisis, and yield spreads have widened

Equity markets have seen significantly less country specific divergence

Lending is still slow, and rates differ to a much greater degree

Differing rates have made monetary policy less coherent across countries

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