Eurozone crisis, financial integration and bank rationing.

Summary Using a stock-flow consistent (sfc) model, we study the extent of intra-area bank financing in credit and government securities purchases. Several results emerge. The use of intra-area credit has no specific stabilizing role in the case where the central bank is lender of last resort. Concerning government financing, we introduce in the model the possibility of bank rationing by interest rates on government securities. The rise in rates contributes to a cumulative slowdown. In this context, the use of intra-zone financing (European Stability Mechanism, bank financing or central bank intervention) can play a stabilizing role, provided that it is not accompanied by fiscal austerity plans. These results illustrate the mechanisms at work in the crisis in southern European countries.