28.06.2017, Europa Briefing: Banking Union: How stable are Europe’s banks?

The global financial crisis presented particular challenges for the Eurozone. The introduction of the euro accelerated the integration of its banking sector. Banks from countries experiencing high levels of growth such as Spain and Ireland borrowed a lot of money from German and French banks. That may have been good for the economy, but it also led to a dependency on foreign financing. When the financial crisis started, the flow of credit from abroad stopped since it was unclear if governments in the crisis countries would be able to support their banking sectors.

The interplay between banks and government finances contributed to the escalation of the euro crisis. On the one hand, governments tried to prevent the collapse of the financial system during the crisis and supported their banking sectors with loans or guarantees. On the other hand, banks suffered from weak government finances since they traditionally hold a lot of their own government’s sovereign debt. The Banking Union was thus created precisely to break the vicious circle of ailing banks and weak government finances in the Eurozone. 

The present Europa Briefing analyzes how almost eight years after the beginning of the crisis the stability of European banks has been ordered and how the banking union is going.

The Bertelsmann Foundation and the Jacques Delors Institut – Berlin explain the key issues of European policy in the publication series "Europa Briefing" and present possible scenarios: What is the problem? How could it go on? And what can politics do now?

All the publications of the joint European project with the Jacques Delors Institut – Berlin are available at www.strengthentheeuro.eu