Author (Person) | Valiante, Diego |
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Publisher | Centre for European Policy Studies [CEPS] |
Series Title | CEPS Working Document |
Series Details | No. 389, 3 February 2014 |
Publication Date | 03/02/2014 |
Content Type | Journal | Series | Blog |
From Source URL click on 'Download the document (PDF) for FREE'. Abstract: Evidence shows that financial integration in the euro area is retrenching at a quicker pace than outside the union. Home bias persists: Governments compete on funding costs by supporting ‘their’ banks with massive state aids, which distorts the playing field and feeds the risk-aversion loop. This situation intensifies friction in credit markets, thus hampering the transmission of monetary policies and, potentially, economic growth. This paper discusses the theoretical foundations of a banking union in a common currency area and the legal and economic aspects of EU responses. As a result, two remedies are proposed to deal with moral hazard in a common currency area: a common (unlimited) financial backstop to a privately funded recapitalisation/resolution fund and a blanket prohibition on state aids. |
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Source Link | Link to Main Source http://aei.pitt.edu/48004/ |
Subject Categories | Business and Industry |
Countries / Regions | Europe |