Financial instability in the Eurozone and the crisis of the GIIPS government bonds

Abstract

The financial instability in the Eurozone, triggered in September 2008, and its intensification as a result of the GIIPS (Greece, Ireland, Italy, Portugal, and Spain) sovereign bonds crisis since 2010, shows the disruptive capacity of the combination of deregulated and liberalized finances and the rigid institutional framework of the Euro. Although this institutionality enabled the growth of the Eurozone’s peripheral economies before the crisis, the rigidities imposed by it on national economic policies became clear when the expectations changed. In this sense, this paper discusses the Eurozone’s financial instability, especially the sovereign bond crisis of GIIPS, in light of the Minskyan approach. The paper describes the principal features of the fragility of GIIPS financial structure, as well as the Eurozone financial system’s behavior and the Eurosystem’s role in dealing with the crisis. It is argued that is possible to understand the GIIPS financial crisis using the Minskyan approach and that the rigidities of the European Monetary Union institutionality, especially with regard to the loss of monetary sovereignty of the national economies, increased the financial fragility of the GIIPS.

Keywords:
PIIGS crisis; Financial instability; Euro; Eurosystem; Minskian approach