The Fiscal Costs of Banking Intervention in the Eurozone

Article Information
Journal: Business and Economics Research Journal
Title of Article: The Fiscal Costs of Banking Intervention in the Eurozone
Author(s): Derya Yılmaz, Dilek Murat
Volume: 6
Number: 2
Year: 2015
Page: 91-112
ISSN: 1309-2448
This study aimed to reveal the fiscal cost of banking interventions in the Eurozone. To this end, firstly, the theoretical underpinnings of a banking crisis and its management policies are explained, then the policies used in the Eurozone and their costs are analyzed in detail. For analysis of banking interventions on budgets, Multidimensional Scaling (MDS) Analysis was used to see similarities and dissimilarities between countries. Two important conclusions emerged. First; countries that have faced a systemic banking crisis (Germany, the Netherlands and Ireland) were dissimilar from the group as a whole from the beginning of the financial crisis. After a sovereign debt crisis, the indebted countries were also affected and disintegrated (Greece and Spain). The second was that the net budgetary impact of these measures was found to be smaller than anticipated but the rise in gross debt was considerable in some countries. Furthermore, in those countries, contingent liabilities posed a threat for future public finances. In order to minimize the fiscal cost of a banking crisis, union-wide crisis management and institutions should be established. This calls for the completion of The Banking Union.
Keywords: Banking crisis, banking crisis management, fiscal cost of banking crisis, MDS Analysis
JEL Classification: G01, G21, H12 Full Text