Squaring the Eurozone’s Vicious Circle

Regardless of the approach, one thing is clear: European policymakers and regulators must act now to eliminate the negative feedback loop between sovereigns and their banks. Waiting for another crisis to strike could have devastating consequences for both.

Lucrezia Reichlin, a former research director at the European Central Bank, is Professor of Economics at the London Business School. Luis Garicano is Professor of Economics and Strategy at the London School of Economics.

Copyright: Project Syndicate, 2014.Two graphs accompany this commentary. To download the first graph, ; to download the second graph, .