Close Menu
The London News
    Facebook X (Twitter) Instagram
    Facebook X (Twitter) Instagram Vimeo
    The London News
    Subscribe Login
    • Tech
    • Fitness & Health
    • Business
    • Finance
    • Food & Drink
    • Lifestyle
    The London News
    • Terms & Conditions
    • Privacy Policy
    • Advertise With Us
    Home»Business»Europe’s financial integration is poorly designed to contain stock market crashes
    Business

    Europe’s financial integration is poorly designed to contain stock market crashes

    EditorBy Editor30 December 2024No Comments2 Mins Read
    Facebook Twitter Pinterest LinkedIn Tumblr WhatsApp VKontakte Email
    Share
    Facebook Twitter LinkedIn Pinterest Email

    The European Union (EU) enjoys deep financial integration, but researchers at NEOMA Business School warn offering abundant credit in these conditions risks creating stock market bubbles likely to burst and, due to market interdependence, trigger repeated crashes across the Eurozone.

    This is because when credit is abundant, investment decisions drift away from economic fundamentals. Banks may become less vigilant, financing long-term, uncertain, and low-productivity projects, while companies prioritize stock buybacks over developing industrial capabilities.

    A study co-authored by NEOMA professors Messaoud Chibane and Gabriel Giménez-Roche finds this phenomenon of “misinvestment” is a direct consequence of monetary policy.

    “When interest rates are artificially kept at very low levels, the perception of risk becomes blurred. Economic agents then engage in strategies that inflate market valuations without creating solid value in return,” say the researchers.

    When markets are financially integrated, negative impacts resulting from misinvestment are harder to contain.

    The researchers analysed five leading Eurozone economies – Germany, France, Italy, Spain, and the Netherlands – between 2002-2022. Their findings reveal that as the probability of a crash increases, the stock markets of these countries become more synchronized, making geographic diversification less effective.

    “A localized crash is no longer just an isolated incident: it can quickly spread to other markets, creating a chain reaction. Within an integrated monetary union, even a minor shock on a major stock exchange threatens the financial stability of the entire region,” say the researchers.

    To prevent the situation from escalating, the researchers recommend implementing a tool to assess the probability of a crash in advance, allowing credit conditions to be temporarily tightened when risks rise. This preventive approach would help curb speculative bubbles before they burst.

    “The idea is to act at the right moment. By slowing credit creation as soon as indicators turn orange, we can prevent the formation of overly fragile bubbles and protect markets from uncontrolled contagion,” say the researchers.

    This study was published in The European Journal of Finance.

    Featured Photo by ALEXANDRE LALLEMAND on Unsplash.

    • Editor
      Editor
    Share. Facebook Twitter Pinterest LinkedIn Tumblr WhatsApp Email
    Previous ArticleVictoriaMetrics helps IHI Terrasun win big in Vegas on $1.2B clean energy project
    Next Article Durham University Business School Revamps Islamic Finance Programme
    Editor
    • Website

    Related Posts

    Cedarwell bespoke joinery commemorates 7-year anniversary with showcase of excellence

    25 August 2025

    London Lions partners with Specialist Sports to provide adidas kit for 2025/26 Season

    11 August 2025

    Epic European Road Trip: Doors 2 Floors Sales Manager Junaid Momoniat Mixes Business with Adventure

    7 August 2025

    From TikTok to Influencer: Tom Cooper-Smith Returns to Lead EMEA Creative Operations

    5 August 2025
    Our Picks

    Cedarwell bespoke joinery commemorates 7-year anniversary with showcase of excellence

    25 August 2025

    Step into Bathroom Style

    25 August 2025

    AI Revolution in Emerging Retail Markets: Moazzam Kamran’s Vision for the Future

    25 August 2025

    Sofa Club Reveals the Truth: The Sofa Is the Nation’s Secret Summer Office

    25 August 2025
    • Facebook
    • Twitter
    • Pinterest
    • Instagram
    About Us
    About Us

    We're accepting new partnerships right now.

    Email Us: [email protected]

    Our Picks

    Cedarwell bespoke joinery commemorates 7-year anniversary with showcase of excellence

    25 August 2025

    Step into Bathroom Style

    25 August 2025

    Author Khel Kalyan Challenges the Marriage Myth in New Book Make Love Not Marriage

    22 August 2025
    Subscribe to Updates

    Subscribe to Updates

    Get the latest creative news from The London News

    Facebook X (Twitter) Instagram Pinterest
    • Terms & Conditions
    • Privacy Policy
    • Advertise With Us
    © 2025 by The London News.

    Type above and press Enter to search. Press Esc to cancel.

    Sign In or Register

    Welcome Back!

    Login below or Register Now.

    Lost password?

    Register Now!

    Already registered? Login.

    A password will be e-mailed to you.