The fact that the socalled “sovereign” debt crisis (which incidentally had also been caused by private debt accumulation) occurred in Europe and not in other regions with even higher debt levels is certainly related to the incomplete institutional setting of EMU. While the monetary part of EMU was fully implemented in 1999, the economic counterpart is still an unfinished business.
A regime of more formal attention to risk exposures, as under Basel II, offers the hope of a more stable pattern of credit availability. Quantitative risk management should reduce the buildup of excessive unintended credit risks that have been assumed in expansions, which in turn will minimize the losses and associated tighter lending standards during recessions.