A la Recherche des Fonds Perdus: Europe and Germany's New Coalition Need a Plan to Restore European Financial Integration

Abstract

German lending to its neighbors is a key determinant of growth in the euro area. Since the 2008 financial crisis, those flows have changed radically, with less investment going into the eurozone "periphery" and more leaving the euro area altogether. Despite a boom in supranational financial institutions, policymakers have yet to address the root cause of the capital flight: the persistence of policy uncertainty in cross-border financial markets. This paper proposes three unorthodox policy solutions.