17th Apr 2021

ECB: No one is 'safe' from euro crisis

  • The paper identified 18 key crisis episodes (Photo: Valentina Pop)

A new report by the European Central Bank (ECB) says that even "safe haven" countries are prone to financial shocks from the euro crisis.

The paper, by ECB economist Livio Stracca, out on Monday (12 August), notes that the profitability of financial companies jumped up or down at key moments in the crisis between January 2010 and May 2013 even in places, such as Germany or the US, where sovereign bonds remained healthy.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

It says negative crisis events provoked "risk aversion" on global markets, hurting developing states, and caused the euro to fall in value.

The crisis episodes had only a "marginal" effect on other currencies, such as the US dollar, the Swiss franc and the yen, however.

They also failed to disrupt oil and gold prices, which crept steadily upward.

The paper identified 18 important crisis events, highlighting the impact of EU statements, of political developments and of media reports.

In terms of EU reactions, positive episodes include a May 2010 promise to take "drastic action" by EU leaders and a July 2012 statement by ECB chief Mario Draghi that he will do "whatever it takes" to save the euro.

They also include a September 2012 ECB announcement that it is buying distressed Italian and Spanish bonds (the so-called Outright Monetary Transactions programme) and an October 2012 EU summit deal to create a banking union.

Negative political events include; a July 2011 scrap on austerity between the then Italian PM Silvio Berlusconi and finance minister Giulio Tremonti; violent street protests in Italy and Spain in September 2012; and a hung parliament in Italy after elections in February this year.

Media reports - such as leaks in late 2010 that the ECB is already buying distressed bonds, or press stories in November 2011 that France and Germany talked about a potential euro break-up - also moved markets.

The negative events typically saw bond-buyers flee from crisis-hit states such as Greece, Ireland, Italy, Portugal and Spain to Germany, Japan, Switzerland, the UK or the US.

They saw relatively stable or lower bond yields in the non-euro states or "safe" euro countries, but banks, hedge funds or other financial firms in the "safe" markets saw their profits plunge.

Each negative shock also saw the euro go down by around 0.2 percent.

Stracca described the crisis as an "experiment for the global transmission of shocks … contagion and spillover."

He said the damage, for example, to German bank profits shows the importance of the "bank-sovereign nexus," which is "at the core of the euro debt crisis."

He noted that the advanced nature of some countries' economies or their decent debt-to-GDP ratios are minor factors in protecting their banks from fallout.

But he said "real" economic links with distressed euro states play a huge role.

"Trade and economic links with the euro area always increase contagion," he noted.

"The trade and economic link with the euro area ... is the most important channel of contagion," he added.

IMF urges Germany to show eurozone vision

The IMF has urged Germany to take a leading role in laying out a vision for the eurozone, coincidentally playing into a domestic spat about Chancellor Merkel's East German roots.

Eurozone economic confidence rises

Economic confidence in the 17-nation eurozone rose in July reaching the highest point since April last year. But eurozone unemployment stays record high.

News in Brief

  1. EU postpones decision on labelling gas 'sustainable'
  2. MEPs call for mass surveillance ban in EU public spaces
  3. Greek and Turkish ministers trade jibes in Ankara
  4. Biden repeats opposition to Russia-Germany pipeline
  5. Navalny in danger, letter warns EU foreign ministers
  6. Lithuania keen to use Denmark's AstraZeneca vaccines
  7. Gas plants largest source of power-sector emissions
  8. Study: Higher risk of blood clots from Covid than vaccines

Vietnam jails journalist critical of EU trade deal

A journalist who had demanded the EU postpone its trade deal with Vietnam until human rights improved has been sentenced to 15 years in jail. The EU Commission says it first needs to conduct a detailed analysis before responding.

Stakeholders' Highlights

  1. Nordic Council of MinistersDigitalisation can help us pick up the green pace
  2. Nordic Council of MinistersCOVID19 is a wake-up call in the fight against antibiotic resistance
  3. Nordic Council of MinistersThe Nordic Region can and should play a leading role in Europe’s digital development
  4. Nordic Council of MinistersNordic Council to host EU webinars on energy, digitalisation and antibiotic resistance
  5. UNESDAEU Code of Conduct can showcase PPPs delivering healthier more sustainable society
  6. Nordic Council of MinistersWomen benefit in the digitalised labour market

Latest News

  1. US rejects Slovenia-linked plan to break up Bosnia
  2. Ukraine urges Borrell to visit Russia front line
  3. Could US sanctions hit Russia vaccine sales to EU?
  4. Polish court pushes out critical ombudsman
  5. Political crises in Romania and Bulgaria amid third wave
  6. Von der Leyen's summer plans undisclosed, after Ukraine snub
  7. Over a million EU citizens back farm-animal cage ban
  8. Three options for West on Putin's Ukraine build-up

Join EUobserver

Support quality EU news

Join us