Kolumne in der
Frankfurter Allgemeine Sonntagszeitung
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The history of financial crises is long and not all events may have been properly recorded. However, reviews in the economic literature point to the credit cycle as the underlying cause of financial crises since the Middle Ages. Recent estimates of the costs of financial crises point to large output losses associated with these crises, reinforcing the view that policies should be directed towards avoiding credit booms and busts. Apart from Basle 3, the official response to the latest financial crises is reflected in the various plans advanced by Paul Volcker in the US, John Vickers in the UK, and Erki Liikanen in the euro area. All these plans have in common that they seek to separate the "risky" parts of the banking business from its "safe" parts. However, as it should be clear from our historical review of financial crises, this is a grave error. The (admittedly porous) dividing line between more or less risky banking activities does not run vertically through financial institutions, separating capital markets related (presumably risky) from traditional (presumably safe) banking activities, but horizontally through banking activities according to the leverage employed in these activities. [more]

"A stimulating read, Dr Mayer’s book combines a concise historical narrative of the events leading up to the euro with an imaginative suggested new architecture for the EMU. Particularly interesting are his insights on how a breakup, should it occur, would evolve."—Alan Greenspan, former Chairman of the Federal Reserve Board

"Thomas Mayer has written a fascinating and thought-provoking book on the origin, performance and problems of the euro area. He questions much of the conventional wisdom about these topics, and proposes novel solutions that run counter to the historically prevailing view that currency union can only survive within a “political union” of the eurozone."—Leszek Balcerowicz, Former Deputy Prime Minister, Finance Minister and President of the National Bank of Poland

"This fascinating and well-written book couldn’t be more timely. With the discussion on the eurozone’s future institutional framework in full swing, Thomas Mayer’s book provides highly relevant economic insights and political perspectives on the debate over how to make the European Monetary Union more stable and sustainable."—Axel Weber, UBS Chairman, former head of Germany’s central bank [more]

Despite apparent consensus that the creation of a ‘Banking Union’ is essential for the survival of the euro, progress is painfully slow. The Single Supervisory Mechanism may not be ready before the middle of next year, the Single Resolution Mechanism may require a laborious change of the EU Treaty and common deposit insurance has been postponed into the indefinite future. Any real progress has been prevented by the protracted fights over which government will be the payer of last resort when banks fail because of past bad loans. In this Policy Brief, Thomas Mayer suggests that a radically new approach is needed if there is any prospect of moving beyond this impasse to reach full Banking Union. Instead of trying to move from common bank supervision over to resolution and then on to deposit insurance, he argues that policy-makers should go backwards and start with deposit insurance, move from there to resolution, and end with supervision. [more]