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The processes and mechanisms of financial integration, Dr Volz argued, has contributed to the current crisis, The adoption of the Euro led to big drop in real interest rates in the periphery countries, and more capital flowed from countries such as Germany and France to these periphery countries such as Greece and Ireland.
As such, capital flow bonanzas occurred and were suddenly stopped or reversed when the global financial crisis triggered by the fall of the Lehman Brothers hit Europe. While the financial markets in the Eurozone were integrated, there was no European financial regulator, and there was no macroeconomic co-ordination at the European level. What could have been done to prevent the crisis in Europe?
Furthermore, more could have been done to regulate property bubbles. Here, Dr Volz cautioned against the view that these recession-hit countries got themselves in this state because of excessive spending, which was not the case for Ireland or Spain for example. It was poor regulation and lack of European coordination that got many peripheral countries into troubles.
To overcome the current crisis, Dr Volz argued that a pan-European regulatory structure to effectively supervise pan-European banks should be put into place, a crisis resolution mechanism needs to be established, and there should be a reduction in incentives for mispricing risk or moral hazard through the institutionalisation of a sovereign default mechanism within the Eurozone. More financial integration is not always better, , as ASEAN has small economies that may be the biggest losers in capital flow bonanzas, sudden stops and reversal of flows.
This report examines the process of economic and financial integration in East Asia in the light of Europe's experience. The report provides a comprehensive. Monetary and Financial Integration in East Asia: The Relevance of European Experience. Yung Chul Park. Charles Wyplosz. Korea University The Graduate.
Hence, capital controls and macroprudential regulation should remain in the policy toolkit to deal with these risks, and capital account liberalisation should be consistent with readiness of economies. An answer to the second question can be found in the European experience in that a certain level of regional financial integration requires a strong regional supervisory structure. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.
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Yung Chul Park Charles Wyplosz. This report examines the process of economic and financial integration in East Asia in the light of Europe's experience.
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