Preserving Financial Stability: A Dilemma for the European Union

15 Pages Posted: 21 Jun 2007


Financial institutions are now crossing national borders within the EU. In balancing member states' desires for sovereignty against the effectiveness of the financial safety net, banks are currently all chartered by Member States and the safety net remains largely the responsibility of individual national governments. The paper questions whether minimally harmonized national safety nets and reliance on voluntary cooperation can keep EU banks safe and sound and prevent financial contagion. The paper examines a number of proposed remedies and recommends enhancing market discipline and adopting a system of prompt corrective action and least-cost resolution to minimize the incidence of bailouts.

Suggested Citation

Garcia, Gillian Glenys and Nieto, Maria J., Preserving Financial Stability: A Dilemma for the European Union. Contemporary Economic Policy, Vol. 25, No. 3, pp. 444-458, July 2007. Available at SSRN: or

Gillian Glenys Garcia (Contact Author)

GGH Garcia Associates ( email )

2407 Highland Green Court
Alexandria, VA 22312
United States
1-703-354-6065 (Fax)

Maria J. Nieto

Banco de España ( email )

Alcala 50
Madrid 28014

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