A tale of two crises: the Euro area in 2008/09 and in 2010

One puzzle that the crises of the past three years have thrown up is why the financial crisis of the period 2008-09 and the sovereign debt crisis of 2010 had such a different political-institutional fall-out on the Euro area. In both, governments were essentially trying to avert a banking collapse. The Euro area passed the stress test of the financial crisis in the period 2008-09 surprisingly well, especially when compared with the US. By contrast, the turmoil in peripheral countries bond markets since late 2009 required the suspension of constitutive principles of economic governance and was a disaster for European political integration. This paper tries to offer an explanation.