Analysis: Market meltdown lays bare Europe's divisions

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A markets sell-off has brought back memories of the euro zone debt crisis more than a decade ago, highlighting divisions that have plagued the currency bloc's efforts to forge a closer bond.

While the years since the debt crisis have seen the 19 countries in Europe's euro area centralise and toughen bank controls, many planned economic reforms in Italy and elsewhere were watered down as vast money printing buoyed the economy.

Now, however, rocketing prices, triggered by that money printing, as well as soaring energy costs in the wake of Russia's invasion of Ukraine and pandemic lockdowns in China, makes this feat difficult to repeat. Speaking to students in London, Lagarde gave no further clues as to how ECB action could look, talking instead about climate change and the impact of war on global grain supplies.The divisions in the euro zone are likely to come to the fore at a ministers' meeting later on Thursday to discuss a deadlocked plan to reinforce the bloc's financial system.

"If there is a bank failure, it will be the same as 2008," he said, adding that individual states rather than the wider bloc would be left to shoulder the burden. "The Draghi period is over." That lack of progress with a banking union, in turn, has weighed on the stocks of Europe's banks, which have been trailing their U.S. rivals for years.

 

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