The Crisis in Retrospect: Causes, Effects and Policy Responses

The Euro area has been hit by two crises. The first, the global financial crisis (GFC) had external (U.S.) origin and has caused the Great Recession with large drops in GDP around the industrial world. The second, the Euro crisis was homemade. It is the result of systemic failures of EMU's policy design. Due to the economic heterogeneity of the Euro area the shocks were felt more severely in the peripheral Member States than in the core leading to an economic and political split of the Euro zone. As a consequence the political architecture of EMU was reformed step by step in order to fight the trinity of crisis: first, the fiscal policy coordination was strengthened by reforming the Stability and Growth Pact and additional agreements (Fiscal Compact); second, the macroeconomic imbalances are now monitored by a new procedure; third, to stabilize the financial (banking) sector many surveillance institutions have been installed and finally the European Banking Union should help to monitor and resolute banks in a more systematic way as before the crisis, switching from "bail-out" to "bail-in" and hence breaking the vicious circle of bank failure and public debt accumulation.