This prologue sets the scene by introducing the book’s main thesis that during the debt crisis, in particular, the years 2010-2012, the European Union has gone through a constitutional transformation. The transformation is characterised by a broadening of the currency union’s conception of stability. Its key manifestations are financial assistance for distressed member states and government bond purchases by the European Central Bank. The transformation can be understood through the lens of solidarity as this makes it possible to conceptualise the unity between the member states and to analyse how political leaders managed to uphold this unity during the crisis. And ultimately, it allows for an understanding of why instead of approving the transformation in Pringle and Gauweiler on the merits, the ECJ should have done so through silence.

Financial crises have occurred repeatedly throughout history. This chapter starts by exploring the different types of crises: banking crises, sovereign debt crises, and currency crises. A banking crisis indicates that a significant part of a country’s banking sector has become insolvent after heavy investment losses, banking panics, or both. A sovereign debt crisis/default occurs when a government fails to meet interest or principal payments on its debt obligations. Finally, a currency crisis causes the value of a country’s currency to fall precipitously. The chapter provides facts and figures about financial crises, and discusses some theoretical models. A first set of models is related to the liability side of banks. Since banks use short-term deposits to finance long-term loans, they are vulnerable to massive withdrawals cumulating in a banking run. A second set of models looks at the asset side of banks. Shocks to fundamentals (e.g. a collapse in real estate prices or increased bankruptcies in the non-financial sector) can upset the business cycle, resulting in deteriorating asset quality that can trigger further banking problems.