ABSTRACT

Although the 2007–09 global financial crisis began in the United States, it did not take long for the European Union (EU) to suffer its contagious effects. For instance, in 2008, eurozone banks wrote the value of their assets down to the same proportion of GDP as did American banks: i.e. 3 percent (IMF 2009: 4). Like in the US, many European banks, most notably in Ireland and the United Kingdom, faced bankruptcy as a result of declining asset values and high indebtedness. In order to prevent their banking systems from imploding, many EU governments had to bail out these failing banks, just as the American government injected funds into the most important US banks. Similarly to its US counterpart, the European Central Bank (ECB) also had to inject massive amounts of liquidity into the eurozone's financial system when interbank credit began to dry up in the fall of 2008, following the high uncertainty as to which banks were safe to lend to and which ones were not after the collapse of Lehman Brothers. 1