| In late 2011 the twin sovereign and bank crises worsened substantially. The very existence of the euro was getting jeopardized by both a creeping fragmentation of the European financial system and by a recession in Southern Europe dragging down the whole EMU. In this paper, we show why there was such urgency to act for the sake of the euro, and that the impact of an eventual Euro zone recession might be significant above all if the US is affected. Putting the financial rescue decisions taken in the June summit in a broader perspective, we show that three brands of reform must be compounded: cap interest rates on public debts at level compatible with reasonable fiscal adjustment, design an insurance-linked Eurobond scheme, and initiate banking union with centralized prudential regulation. |
Abstract
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