This research aims to explain mechanisms of the new twin crisis, the influence of such a crisis on European integration, and identify indicators that can predict such a twin crisis. First, the old and the new twin crisis will be explained and the necessity of this research will be elaborated upon. Hereafter, the main mechanisms of the new twin crisis will be identified based on a literature review. From this literature review a set of indicators, accompanied by certain thresholds, will be created that can indicate that a twin crisis is about to happen. These indicators will be used to analyse data from 1970 until 2015 to asses whether this new twin crisis has occured in the past and what its political consequences were. The constructed mechanism to explain the new twin crisis and the list of indicators will be put to the test by conducting an indepth case study of Italy and its risk of encountering a new twin crisis. Based on the model that links the new twin crisis to political consequences, the case study attempts to link the new twin crisis to the European integration project. This research will lay the foundation for the creation of predictive models for the new twin crisis and provide insights in one of the main destabilisers for European integration. It therefore establishes a set-up and lay-out for future research in this specific field.

This dissertation is a collection of three essays dealing with selected problems of the Euro Area during its most recent crisis. It applies empirical, theoretical, and institutional analyses to gain new insights into many of its financial aspects. The first essay offers an alternative explanation for the surge in government bond spreads. Many researchers attribute this phenomenon to market sentiment and multiple equilibria alone. We show that an often neglected fundamental variable may drive spreads: a decrease in the expected recovery value of private market participants. With an ever-increasing share of crisis countries’ debt held by official creditors, private investors may feel pushed into the position of subordinated creditors. The other two essays both explain the sharp increase in central bank credit from different perspectives. First, from the national perspective, central banks may be confronted with a classical tragedy-of-the-commons problem, which gives rise to an expansionary bias. Second, from the perspective of the ECB, we argue that the empirical patterns surrounding the liquidity provision in December 2011 are reminiscent of a speculative attack on a fixed exchange rate system.