Asian and European Financial Crises Compared

Working Paper
October 2013

The European and Asian financial crises are the two most recent major regional crises. This paper compares their origins and evolution. The origins of the two sets of crises were different in some respects, but broadly similar. The two sets of crises also shared similarities in their evolution, but here the differences were more significant. The European crisis countries received more external financial support, despite the fact that they involved more solvency issues while the Asian crises involved more liquidity issues. On balance, the reform programs in the European crises were less demanding and rigorous than in the Asian crises. Partly as a consequence, the negative impacts on the global economy have been larger. Author Edwin M. Truman draws three lessons from this analysis: First, history will repeat itself; there will be other external financial crises. Second, other countries have a stake in appropriate crisis management. Third, the International Monetary Fund (IMF) and other countries were mistaken in treating the European crises as individual country crises rather than as a crisis for the euro area as a whole that demanded policy conditionality on all members of the euro area.