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2. The Spanish Hangover
- Author:
- Daniel Gros and Cinzia Alcidi
- Publication Date:
- 04-2012
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- Spain faces high unemployment and slow growth. This paper focuses on an important source of those problems, namely its housing market. While some adjustment has occurred since Spain's housing bubble burst in 2008, the authors find that house prices and construction need to decrease more to slow Spain's unsustainable accumulation of foreign debt.
- Topic:
- Debt, Economics, Markets, and Financial Crisis
- Political Geography:
- Europe and Spain
3. 'Grexit': Who would pay for it?
- Author:
- Daniel Gros, Cinzia Alcidi, and Alessandro Giovannini
- Publication Date:
- 05-2012
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- What would be the cost if Greece were to exit from the eurozone? This much-debated question cannot be answered with a single number. The consequences of Greece's exit would depend decisively on the exact circumstances of events in the country itself as well as the general state of financial markets in the eurozone.
- Topic:
- Debt, Markets, Regional Cooperation, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe and Greece
4. Can Italy and Spain survive rates of 6-7%?
- Author:
- Daniel Gros
- Publication Date:
- 07-2012
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- The sentiment that the euro is now in real danger is based in large part on the widespread conviction that interest rates of 6-7% are simply unsustainable for both Italy and Spain., After taking a closer look at the fundamentals, however, Daniel Gros concludes in this new Policy Brief that both countries should be able to live with this level of interest rates for quite some time, but only if they mobilize domestic savings, which remain strong in both countries. For Spain, some debt/equity swaps are also needed.
- Topic:
- Debt, Economics, Markets, and Financial Crisis
- Political Geography:
- Europe, Spain, and Italy
5. Central Banks in Times of Crisis: The FED vs. the ECB
- Author:
- Daniel Gros, Cinzia Alcidi, and Alessandro Giovannini
- Publication Date:
- 07-2012
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- Different economic and financial structures require different crisis responses. Different crises also require different tools and resources. The first 'stage' of the financial crisis (2007-09) was similar on both sides of the Atlantic, and the response was also quite similar. The second stage of the crisis is unique to the euro area. Increasing financial disintegration within the region has forced the ECB to become the central counterparty for the entire cross-border banking market and to intervene in the sovereign bond market of some stressed countries. The actions undertaken by the European Central Bank (ECB), however, have not always represented the best response, in terms of effectiveness, consistency and transparency. This is especially true for the Securities Markets Programme (SMP): by de facto imposing its absolute seniority during the Greek PSI (private sector involvement), the ECB has probably killed its future effectiveness.
- Topic:
- Debt, Economics, International Trade and Finance, Markets, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe
6. A simple model of multiple equilibria and sovereign default
- Author:
- Daniel Gros
- Publication Date:
- 07-2012
- Content Type:
- Working Paper
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- This paper presents a simple model that incorporates two types of sovereign default cost: first, a lump-sum cost due to the fact that the country does not service its debt fully and is recognised as being in default status, by ratings agencies, for example. Second, a cost that increases with the size of the losses (or haircut) imposed on creditors whose resistance to a haircut increases with the proportional loss inflicted upon them.
- Topic:
- Debt, Economics, International Trade and Finance, Markets, and Financial Crisis
- Political Geography:
- Europe
7. External versus Domestic Debt in the Euro Crisis
- Author:
- Daniel Gros
- Publication Date:
- 05-2011
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- As EU leaders muddle through the eurozone crisis, the debate about its root causes continues. CEPS Director Daniel Gros argues in this Policy Brief that the debate is important if we are to understand how to prevent future crises. In his view, external debt is the key to the turmoil in European economies and that the focus on total public debt is therefore misleading.
- Topic:
- Debt, Economics, and Financial Crisis
- Political Geography:
- Europe
8. Debt reduction without default?
- Author:
- Daniel Gros and Thomas Mayer
- Publication Date:
- 02-2011
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- This paper proposes a two-step, market-based approach to debt reduction: · Step 1.The European Financial Stability Facility (EFSF) would offer holders of debt of the countries with an EFSF programme (probably Greece, Ireland and Portugal = GIP) an exchange into EFSF paper at the market price prior to their entry into an EFSF-funded programme. The offer would be valid for 90 days. Banks would be forced in the context of the ongoing stress tests to write down even their banking book and thus would have an incentive to accept the offer. · Step 2. Once the EFSF had acquired most of the GIP debt, it would assess debt sustainability country by country. a) If the market price discount at which it acquired the bonds is enough to ensure sustainability, the EFSF will write down the nominal value of its claims to this amount, provided the country agrees to additional adjustment efforts (and, in some cases, asset sales). b) If under a central scenario this discount is not enough to ensure sustainability, the EFSF might agree on a lower interest rate, but with GDP warrants to participate in the upside.
- Topic:
- Debt, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe
9. Speculative Attacks within or outside a Monetary Union: Default versus Inflation (what to do today)
- Author:
- Daniel Gros
- Publication Date:
- 11-2011
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- Is a high level of public debt inherently more dangerous within a monetary union? During the 1990s it was often argued that only by entering the EMU could Italy (or Spain) protect itself from the high interest rates it had to pay on its large public debt. The argument was that by joining the single currency, Italy could convince financial markets that it would not inflate away the value of its debt and hence benefit from lower risk premia.
- Topic:
- Debt, Economics, and Financial Crisis
- Political Geography:
- Europe, Spain, and Italy
10. Adjustment Difficulties in the GIPSY Club
- Author:
- Daniel Gros
- Publication Date:
- 03-2010
- Content Type:
- Working Paper
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- This paper describes the key economic variables and mechanisms that will determine the adjustment process in those euro area countries now under financial market pressure. (Greece, Ireland, Portugal, Spain and Italy = GIPSY) The key finding is that the adjustment will be particularly difficult for Greece (and Portugal) because these are two relatively closed economies with low savings rates. Both of these countries are facing a solvency problem because they combine high debt levels with low growth and high interest rates. Fiscal and external adjustment is thus required for sustainability, not just to satisfy the Stability Pact. By contrast, Ireland and Spain face more of a liquidity than a solvency problem. Italy seems to have a much better starting position on all accounts. Fiscal adjustment alone will not be sufficient to ensure sustainability. Without significant reductions in labour costs, these economies will face years of stagnation at best. Especially in the case of Greece, it is imperative that the cuts in public sector wages are transmitted to the entire economy in order to restore competitiveness, and thus ensure that export growth can become a vital safety valve. Without an adjustment of wages in the private sector, the adjustment will become so difficult that failure cannot be excluded.
- Topic:
- Debt, Economics, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe, Greece, Spain, Italy, Portugal, and Ireland