In industrial countries, financial openness increased from 15% in 1970 to 32% in 1990, then picking up speed and reaching 150% in 2006. Of course, overall, increasing financial integration is a very positive development, leading to higher efficiency and welfare. But it also means that disturbances spread faster from one country to the other.
The recent turbulence makes that very clear: the defaults of subprime borrowers in the United States eventually turned into a widespread international crisis of confidence and liquidity. So, let us take a closer look at the recent turmoil in the financial system.