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Krise überwunden – Folgeschäden bleiben

Krise überwunden – Folgeschäden bleiben Financial crisis bettered - consequential damage remains. Reflections on the financial crisis. Among the characteristics of the financial system the most unfavorable is its inherent instability. As Keynes pointed out, this instability emerges from inevitable uncertainty in financial markets. Although a much more pronounced one than the crises before the financial crisis of 2007 was a consequence of this instability. In case of a crisis the government may prevent the financial system from collapsing, as could be seen in the aftermath of 2007. However, there is no chance for an ex ante avoidance of financial crises. Even stricter regulation, which makes sense in order to strengthen the resilience of financial institutions against shocks, may only reduce but not eliminate the probability of crises. Despite its instability the financial system contributes significantly to the dynamic trend growth of the world economy. The direct costs of the 2007 crisis in terms of output losses could turn out to be relatively small on the global level. The paradigm shift in the EU regarding government debt should cause more concern. The non-bail-out-paradigm is undermined by the new European Stability Mechanism (ESM). The ESM delivers financial assistance to over-indebted member states. By this market signals will be suppressed and incentives for a debt reduction will be weakened - bad news for the Euro. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Zeitschrift für Wirtschaftsgeographie de Gruyter

Krise überwunden – Folgeschäden bleiben

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References (1)

Publisher
de Gruyter
Copyright
Copyright © 2011 by the
ISSN
2365-7693
eISSN
2365-7693
DOI
10.1515/zfw.2011.0002
Publisher site
See Article on Publisher Site

Abstract

Financial crisis bettered - consequential damage remains. Reflections on the financial crisis. Among the characteristics of the financial system the most unfavorable is its inherent instability. As Keynes pointed out, this instability emerges from inevitable uncertainty in financial markets. Although a much more pronounced one than the crises before the financial crisis of 2007 was a consequence of this instability. In case of a crisis the government may prevent the financial system from collapsing, as could be seen in the aftermath of 2007. However, there is no chance for an ex ante avoidance of financial crises. Even stricter regulation, which makes sense in order to strengthen the resilience of financial institutions against shocks, may only reduce but not eliminate the probability of crises. Despite its instability the financial system contributes significantly to the dynamic trend growth of the world economy. The direct costs of the 2007 crisis in terms of output losses could turn out to be relatively small on the global level. The paradigm shift in the EU regarding government debt should cause more concern. The non-bail-out-paradigm is undermined by the new European Stability Mechanism (ESM). The ESM delivers financial assistance to over-indebted member states. By this market signals will be suppressed and incentives for a debt reduction will be weakened - bad news for the Euro.

Journal

Zeitschrift für Wirtschaftsgeographie – de Gruyter

Published: Oct 1, 2011

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