Europe’s Turn

Abstract

While the global financial crisis of 2007–09 was concentrated in the United States and Europe, it also affected other advanced countries, as well as emerging markets. But the effects were mostly due to contagion through the trade channel, the financial systems of Asian and Latin American countries, as well as those of most of the smaller advanced countries and South Africa, withstanding the crisis much better than those hosting large financial centers. The emerging countries of Central and Eastern Europe (CEE) were not so fortunate. Most of them fell into a serious financial swoon that brought some of them to the brink of sovereign default and steep economic decline. In several instances large official support operations, involving both the IMF and the EU, were needed. On top of that, in early 2010 Greece, a member of the Euro Area, got into serious trouble following a sudden stop of capital inflows. Other Euro Area countries were affected as well, leading to an attack on the common currency itself.