The Dilemma of Systemic Crisis

Jan. 21, 2016 International institutions are struggling to manage Europe’s economic challenges, while still adhering to their own lending standards.

Briefing

|January 21, 2016

International financial institutions are striving to implement rules that contribute to stability, reduce risk and maintain fair competition, but the need to solve Europe’s ongoing, severe financial challenges is repeatedly coming into conflict with these goals. The International Monetary Fund’s move yesterday to end so-called “system exemptions”, as well as the European Union’s ongoing negotiations with Italy on proposals to address the problem of non-performing loans, highlight the dilemma international institutions face as they attempt to stem Europe’s economic crisis. Europe’s increasing fragmentation and continued economic challenges mean that international institutions, and the EU in particular, are unable to implement comprehensive policies for avoiding systemic crises, as they instead resort to ad-hoc, short-term measures in an attempt to avoid spillover of economic problems.

The IMF’s suspension of its “systemic exemption” rule, which was introduced in 2010

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