Painful lessons from the Great Financial Crisis The global financial crisis with its consecutive phases has disclosed the weaknesses of that institutional set up and the overestimated belief in market discipline. Originally, the financial crisis erupted in August 2007with the epicenter at the US subprime mortgages markets. It deteriorated dramatically in September 2008 when the US investment bank Lehman Brothers collapsed.
And it triggered the sovereign debt crisis in the euro area in spring 2010. The pre-crisis situation of public finances differed in the various countries of the euro zone, sometimes significantly. Regardless of whether private debt has been socialized or the problem was from the beginning in public finances itself, the outcome was a drastic increase in the public debt burden.