The creation of euro area financial safety nets

This paper provides an overview of the recent financial stability mechanisms and their various shortcomings and tries to brush the outline of a more

Publishing date: 02 July 2012
Authors: Shahin Vallée Michiel Bijlsma

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The financial crisis has exposed the need to devise stronger and broader international and regional safety nets in order to deal with economic and financial shocks and allow for countries to adjust.

The euro area has developed several such mechanisms over the last couple of years through a process of trial and error and gradual enhancement and expansion. Their overall architecture remains imperfect and leaves areas of vulnerabilities. This paper provides an overview of the recent financial stability mechanisms and their various shortcomings and tries to brush the outline of a more comprehensive safety net architecture that would coherently address the banking, sovereign and external imbalances crises against both transitory and more permanent shocks. It aims to provide a roadmap for further improvements of the current mechanism and the creation of new devices including a banking resolution mechanism and amore powerfulmechanismto provide financial assistance addressing both the sovereign and external dimensions of the shocks thereby reducing the need for the ECB to fill the current void.

About the authors

Shahin Vallée

Shahin Vallée is head of DGAP’s Geo-Economics Program. Prior to that, he was a senior fellow in DGAP’s Alfred von Oppenheim Center for European Policy Studies.

Until June 2018, Vallée was a senior economist for Soros Fund Management, where he worked on a wide range of political and economic issues. He also served as a personal advisor to George Soros. Prior to that, he was the economic advisor to Emmanuel Macron at the French Ministry for the Economy and Finance, where he focused on European economic affairs. Between 2012 and 2014, Vallée was the economic advisor to President of the European Council Herman Van Rompuy. This experience has put him at the heart of European economic policy discussions since 2012, in particular on issues related to the euro area and international policy coordination (IMF, G20). Having started his career working for social investment vehicles and entrepreneurship in Africa, he has also worked as a visiting fellow at Bruegel, a Brussels-based economic think tank, and as an economist for a global investment bank in London.

Vallée is currently completing a PhD in political economy at the London School of Economics and Political Science. He holds a master’s degree from Columbia University in New York, a degree in public affairs from Sciences Po in Paris, and an undergraduate degree in econometrics from the Sorbonne.
Michiel Bijlsma

Michiel heads the competition and regulation department at the Netherlands Bureau for Economic Policy Analysis (CPB). The sector comprises three research programs: Financial Markets, Health Care, and Innovation and Science. He has a PhD in theoretical physics from the University of Utrecht, and is a visiting fellow at Tilec, University of Tilburg. Michiel Bijlsma joined Bruegel as a visiting fellow in January 2012 and has been affiliated as a Non-Resident Fellow until 2016.

Michiel’s research is in the areas of Corporate Governance, Banking, and Health Care markets. He has co-authored popular Dutch books on the 2007-2008 financial crisis and the current European debt crisis. Prior to his work for CPB, Michiel worked as a senior economist at the Netherlands Competition Authority on high-profile cases on fee structures of debit card payment systems and as a consultant for international firms at Ernst & Young risk management.