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1. Strategies to future-proof Zambia: Debt relief and beyond

Author:
Vincent Obisie-Orlu
Publication Date:
07-2023
Content Type:
Policy Brief
Institution:
Good Governance Africa (GGA)
Abstract:
Debt relief negotiations are currently taking place, with Zambia expected to be the first country to receive debt relief under the newly created G20 Common Framework. However, the process faces challenges, with China and the United States trading accusations of impeding the process. Some of Zambia's creditors have also been unwilling to agree to write off some of the country's debt. Positively, innovative approaches to debt relief have been proposed that would support Zambia's net-zero ambitions and promote sustainable development, such as debt for nature swaps. The integration of Zambia into the European Union's Critical Minerals framework could further support and assist Zambia in attaining a deal. Without a deal, Zambia risks being plunged into further macroeconomic uncertainty at a time when the country needs investment to capitalise on opportunities presented by political stability and structurally higher prices for copper and other critical minerals with which Zambi a is endowed.
Topic:
Debt, Development, Natural Resources, Political stability, Mining, and Macroeconomics
Political Geography:
Africa and Zambia

2. The ABCs of Sovereign Debt Relief

Author:
Rakan Aboneaaj, Jocilyn Estes, and Clemence Landers
Publication Date:
10-2022
Content Type:
Policy Brief
Institution:
Center for Global Development
Abstract:
We are living in a time when many countries face heightened debt vulnerabilities. Already high before the pandemic, debt levels reached a 50-year peak following the growth in government spending to combat COVID-19. Debt is not inherently bad; borrowing can allow countries to finance vital government investment. But unsustainable levels of debt can have devastating consequences for a country’s population, crowding out government spending on even basic necessities including food, medicine, and fuel imports. In Sri Lanka, for example, 71 percent of government revenue was spent on debt service before the country defaulted. Even where the tradeoff is not so dire, unsustainable debt service can limit productive investments in infrastructure, education, healthcare, and other sectors, hampering the economic growth necessary to reduce a country’s debt burden. After a decade-long period of low borrowing costs, a confluence of rising interest rates, inflation, and commodity shocks have raised the likelihood of overlapping debt crises in developing countries. The International Monetary Fund (IMF) now estimates that 30 percent of emerging market countries and 60 percent of low-income countries could face trouble paying down their debts or will soon. There is no international bankruptcy mechanism for countries that default on their external obligations. Instead, countries have historically depended on a patchwork of precedents, contracts, and conventions to bring creditors to the table for debt relief negotiations. The United States has a legacy as the lead architect of large global debt relief initiatives, from the Brady Bond plan for Latin America to the Heavily Indebted Poor Countries (HIPC) Initiative that kickstarted debt relief for poor countries in the 1990s. However, the global creditor landscape has changed significantly over the past decade. Low-income sovereigns’ largest creditors today—China and private bondholders—operate under much different principles than the leading bilateral creditors of the past, making the traditional norms and structures less effective for present debt challenges. The objective of the international financial architecture—historically overseen by the IMF and its shareholders— will be to corral these new creditors into a cooperative arrangement to deliver on debt relief.
Topic:
Debt, Development, Governance, Credit, and Sovereign Debt
Political Geography:
Global Focus

3. Don’t look only to Brussels to increase the supply of safe assets in the European Union

Author:
Francesco Papadia and Heliodoro Temprano Arroyo
Publication Date:
12-2022
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
A sufficient supply of safe assets denominated in euros is critical if the European Union is to achieve full banking and capital markets union while fostering the euro’s international role. The European debate on developing the supply of safe assets has so far focused on the possible creation of a common safe asset. This has tended to underplay the potential contribution of sovereign assets. Expanding the supply of national safe assets, notably through the gradual implementation of fiscal and growth-oriented structural policies in euro-area countries, leading to upgrading of their sovereign ratings, provides a promising, and perhaps more feasible, option. An upgrade to triple A of those euro-area countries that are currently rated double A could produce substantially more safe assets than most common safe asset proposals, including those based on the development of ‘synthetic’ safe assets. There has been a remarkable increase in the share of supranational assets in the stock of euro-based safe assets since 2008, reflecting downgrades in sovereign ratings and the EU’s financial responses to the euro-area crisis and the pandemic. However, safe assets in euro remain dominated by those issued by euro-area governments. Although common safe assets have certain advantages over national safe assets, reflecting their built-in risk diversification properties, there is currently not much political appetite for such proposals. Meanwhile, sovereign safe assets already offer many of the advantages of common safe assets. Sound fiscal policies and growth-stimulating reforms, which are in any case desirable, should be implemented to improve the credit ratings of euro-area sovereigns. This might not be politically feasible in the short-term, given the difficult economic environment currently faced by the EU, but it should be a key component of the EU’s medium-term safe asset strategy. Should the political consensus be found to create a common safe asset, such an asset could be incorporated into the euro area’s existing safe asset system, reinforcing its positive effects.
Topic:
Debt, Markets, Monetary Policy, European Union, Regional Integration, European Monetary Union, and Banking
Political Geography:
Europe

4. Improving China's participation in resolving developing-country debt problems

Author:
Martin Chorzempa and Adnan Mazarei
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The COVID-19 shock has exacerbated the struggles of many emerging-market and developing economies (EMDEs) to repay their external debt. One of the most urgent challenges relates to debt owed to China, whose lending spree under its Belt and Road Initiative and other programs has played an outsized role in what amounts to a crisis for many countries. The scope of the problem is striking. China is owed more than $100 billion, or 57 percent of all debt owed to official creditors by the countries that need help the most. China is not a member of the Paris Club of official creditors, which coordinates, within a multilateral framework, the resolution of general sovereign illiquidity or unsustainable external debt of EMDEs. There is an urgent need to put in place more effective, long-term solutions to help durably lower the risks of prolonged debt difficulties in EMDEs. These problems could be partly addressed by creating creditor committees to coordinate debt relief with China. The Group of Twenty (G20) has taken some steps to include creditor committees in the context of the Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative (DSSI), but only for low-income countries that qualify for the DSSI and only for official creditors. To better address debt distress, it needs to extend the approach, especially to middle-income debtor countries.
Topic:
Debt, Development, Emerging Markets, and G20
Political Geography:
China and Asia

5. Accounting for climate policies in Europe’s sovereign debt market

Author:
Marta Dominguez-Jimenez and Alexander Lehmann
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
International debt investors increasingly demand assets that are aligned with environmental, social and governance objectives. Sovereign debt is being belatedly swept up in this change. This huge asset class represents a uniquely long-term claim and funds a wide range of public expenditure, both brown and green. Public capital expenditures will be a central part of the roughly €3 trillion investment budget needed to pay for the European Green Deal. European Union countries have so far met investor appetite for climate-aligned assets through sovereign green bonds, the issuance of which has rapidly grown since 2017. The EU itself will also issue green bonds in large volumes. However, because of some inherent flaws in such instruments and as their still-weak frameworks, these bonds are unlikely to meet the environmental criteria demanded by investors, and will complicate established principles in sovereign debt management. Much more comprehensive information is needed on the climate related aspects of the public budgets of EU countries. Greater transparency in this respect would support stability and improve the functioning of capital markets, given that sovereign debt plays a pivotal role in all investor portfolios and also in regulatory and monetary policy. Adoption by sovereign issuers of green budgeting principles, based on a common taxonomy of sustainable activities, would enhance transparency. It could also be driven by investors who, under new EU rules, must disclose the climate-related aspects of all financial instruments offered in the capital market.
Topic:
Climate Change, Debt, Markets, Sovereignty, European Union, Finance, and Sustainability
Political Geography:
Europe

6. Germany’s Debt Brake and Europe’s Fiscal Stance after COVID-19

Author:
Shahin Vallée, Jérémie Cohen-Setton, and Dominik Buhl
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
German Council on Foreign Relations (DGAP)
Abstract:
Germany’s plan to return to its debt brake creates a serious risk of premature fiscal tightening. Given that the fiscal divide between Europe and the US will widen sharply in 2021, a hasty return to European and German fiscal rules would stifle recovery and undermine efforts to rebuild transatlantic ties in trade and macroeconomic cooperation. This paper proposes several practical options to attenuate the fiscal drag associated with a return to the debt brake and calls for a broad debate on its reform.
Topic:
Debt, European Union, Finance, Transatlantic Relations, and COVID-19
Political Geography:
Europe, Germany, and United States of America

7. Containing the Pandemic Public Debt

Author:
Committee for Economic Development of the Conference Board
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
The Conference Board
Abstract:
In early 2020, the COVID-19 pandemic presented the entire world with its worst public health threat in at least a century. The precise seriousness of the pandemic, of course, could not be known at the outset; and in fact, the pandemic is not yet vanquished as this statement is written. The extent of the damage the virus and its mutations will ultimately cause is not yet fully known. But the near-miraculous efforts to develop vaccines, contain the infection, and treat the infected provide much-needed hope that a return to “normal” is not out of reach. The pandemic had economic consequences as well. And like the public health impact, the shock to the economy was large but impossible to assess accurately at its outset. And like the damage to public health, the economic fallout is still impossible to assess today with complete accuracy. For the first time in 100 years, stay-at-home orders to protect the public health spurred an economic downturn and dramatic job losses—leaving a wide swath of businesses in hospitality, travel, leisure, dining, and retail nearly shut down, with entire occupations, such as personal service workers, facing extended layoffs or even permanent job loss. The fates of these businesses and workers are unpredictable, depending on the uncertain course of the pandemic itself. Another similarity between the public health and the economic threats is that prudent public policy required strong and immediate responses. With the ultimate extent of the damage unknown but potentially catastrophic, executive and congressional policymakers deemed it essential that government react swiftly and robustly. Policymakers and commentators repeated often that the nation should err on the side of action—that it would be better to do too much rather than too little.
Topic:
Debt, Economy, Public Health, Pandemic, and COVID-19
Political Geography:
North America and United States of America

8. Xi Jinping’s Evergrande Dilemma

Author:
John Lee
Publication Date:
09-2021
Content Type:
Policy Brief
Institution:
Hudson Institute
Abstract:
Evergrande is one of the top-two real estate developers in a still highly fragmented Chinese sector. Its main strategy is to achieve ever-increasing scale (rather than profitability) in order to move ahead of and crowd out commercial competitors. It has also amassed the largest land reserves of all Chinese developers, which were financed through massive borrowings. By 2018, Evergrande held 822 pieces of undeveloped land in 228 cities, with a planned gross floor area of 3.28 billion square feet of new homes—the equivalent of 10 percent of Germany’s entire housing stock. It paid $75 billion just for this undeveloped land. Although Evergrande’s market share is only around 4 percent, its borrowings stand out. Its current balance sheet liabilities amount to an estimated 2 percent of China’s gross domestic product (GDP), while its off-balance-sheet liabilities could be another 1 percent of China’s GDP. This makes Evergrande the most indebted property developer in the world. Burdened by this debt, struggling to meet its debt interest and repayment obligations, and viable only if property asset values and sales continue to increase, Evergrande faces possible financial collapse—an event bound to have flow-on effects for the Chinese economy. However, the unusually high global interest in Evergrande has arisen because its woes are increasingly seen as symptomatic of those faced by the broader Chinese economy, which is struggling with enormous levels of indebtedness and overreliance on the real estate sector. Debt held by nonfinancial institutions in China increased from about 115 percent of GDP in 2010 to around 160 percent of GDP currently. This is the most rapid and largest increase in a 10-year period for any major economy and makes the level of debt held by Chinese nonfinancial institutions one of the highest in the world. The real estate sector accounts for around 15 percent of GDP, while property services account for another 14 percent—the highest in any developing economy. The share of the real estate sector as a proportion of GDP was only about 4 percent in 1997 and 9 percent in 2008. Since 2008, up to a third of all domestic fixed investment has gone into real estate, and up to half of total national debt is linked to the real estate sector.
Topic:
International Relations, Foreign Policy, Debt, Economics, Markets, and Business
Political Geography:
China and Asia

9. Will corporate debt choke the post-COVID-19 recovery?

Author:
Frederico Mollet
Publication Date:
01-2021
Content Type:
Policy Brief
Institution:
European Policy Centre (EPC)
Abstract:
Europe’s economic recovery is threatened by the corporate debt overhang created in the wake of the pandemic. Even as vaccines roll out, Europe faces the prospect of a prolonged retrenchment as indebted firms pull back investments and repair their balance sheets. Insolvency procedures have gradually improved over the past decade in Europe, but decisive and swift public action is needed to take advantage of these reforms. Given the scale of the crisis, Frederico Mollet argues in favour of a comprehensive European restructuring strategy. EU member states and the Commission must step in to provide the resources, guidance, and coordination necessary to push through this monumental restructuring. This strategy would furthermore benefit from common European guidelines and criteria for creditors and debtors. It will not only increase the likelihood of success but also protect the level playing field. Lack of a clear strategy and coordinated approach will result in a drawn-out restructuring process that pushes too many viable firms into liquidation and permanently hampers the economic recovery. Centring on private restructurings would also minimise the use of public funds at a time when governments have to deal with multiple competing fiscal pressures.
Topic:
Debt, Political Economy, and Economic Recovery
Political Geography:
Europe

10. Hezbollah Has a New Strategy to Survive Lebanon’s Financial Crisis

Author:
Hanin Ghaddar
Publication Date:
03-2020
Content Type:
Policy Brief
Institution:
The Washington Institute for Near East Policy
Abstract:
Unless Washington and its allies respond to the protestors’ legitimate demands for reform, the group will survive through measures such as expanding its smuggling activity, promoting its financial institutions, and selectively scapegoating corrupt politicians. When IMF officials visited Lebanon late last month amid its accelerating economic freefall, many wondered whether these developments might alter the behavior of Hezbollah, the designated terrorist group that has a deep financial stake in the country’s public and private sectors. During a previous funding crisis—the increase in U.S. sanctions against the group’s chief underwriter, Iran—the “Party of God” and its foreign sponsors formulated a new strategy to evade these measures and create alternative sources of funding. Such sources allowed Hezbollah to make further inroads into government agencies following the 2018 parliamentary elections. For example, the group’s leaders insisted on controlling the Health Ministry, which commands Lebanon’s fourth-largest budget at $338 million per year; they also gained more access to the Ministry of Public Works and Transport, the Agriculture Ministry, and the Ministry of Energy and Water, whose assistance was used to fund their affiliated projects and businesses. That worked until Lebanon’s own economy began its current nosedive. Unemployment has hit a record high of 40 percent, and the lira has slumped by about 60 percent on the parallel market, hiking inflation. Officially pegged to the dollar, the currency has plummeted 40 percent on the black market as local banks ration dollars necessary for imports of food, medicine, and other essential goods. Meanwhile, Lebanon has one of the highest debt-to-GDP ratios in the world (over 150 percent) and may not be able to pay $1.2 billion in Eurobonds this month. As with the Iran sanctions, however, Hezbollah has a strategy to survive this domestic pressure, at least in the near term.
Topic:
Foreign Policy, Corruption, Debt, Politics, Protests, and Hezbollah
Political Geography:
Middle East, Lebanon, and United States of America

11. A New Policy Toolkit Is Needed as Countries Exit COVID-19 Lockdowns

Author:
Olivier Blanchard, Thomas Philippon, and Jean Pisani-Ferry
Publication Date:
06-2020
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The measures that most governments took in response to the sudden collapse in economic activity during the COVID-19 lockdowns nearly exclusively focused on protecting vulnerable workers and firms. These measures included unemployment benefits, grants, transfers, loans at low rates, and tax deferrals. As lockdowns are lifted, governments must shift policies toward supporting the recovery and design measures that will limit the pain of adjustment while preserving productive jobs and firms. This Policy Brief explores how such measures can be designed, with particular emphasis on Europe and the United States. The authors propose a combination of unemployment benefits to help workers, wage subsidies and partially guaranteed loans to help firms, and debt restructuring procedures for small and medium-sized companies handicapped by excessive legacy debt from the crisis.
Topic:
Debt, Economics, Government, Labor Issues, Unemployment, and Coronavirus
Political Geography:
Europe, North America, and United States of America

12. Sovereign debt relief in the global pandemic: Lessons from the 1980s

Author:
Edwin M. Truman
Publication Date:
10-2020
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The coronavirus pandemic and an unprecedented global recession have triggered fears of a debt crisis requiring massive intervention by international financial institutions as well as debt restructuring by private and official creditors. Truman draws two lessons for the current crisis, based on his ring-side experience during the debt crises of the 1980s. First, the initiation of debt relief will require a broad consensus among four groups: the borrowing countries, their foreign creditors, the authorities of the countries in which those creditors are located, and international institutions. Reaching consensus takes time. Second, implementation of the consensus framework will be case by case, because of differences in the political and economic circumstances of each country, which will militate against simple replication for different countries and against implementation all at the same time. Any framework will not be self-implementing. While the call for rapid action is understandable, applying a one-size-fits-all approach will not be possible.
Topic:
Debt, Emerging Markets, History, International Monetary Fund, Financial Crisis, World Bank, and COVID-19
Political Geography:
Global Focus

13. US Fiscal Health: Is There Life After Debt?

Author:
Committee for Economic Development of the Conference Board
Publication Date:
07-2020
Content Type:
Policy Brief
Institution:
The Conference Board
Abstract:
Even before the COVID-19 pandemic of 2020, the United States faced the most serious fiscal threat in its modern history. The economic devastation wrought by the outbreak has made the problem far worse. Despite the very serious threat to US fiscal health, this issue does not rank among the top five for American voters in the 2020 election campaign.1 CED addresses the direct impact of the pandemic elsewhere in this series. This CED Solutions Brief will explain why even the prepandemic threat must be a public policy priority.
Topic:
Debt, Health, Capitalism, Fiscal Policy, and COVID-19
Political Geography:
North America and United States of America

14. Ghana’s Oil Sales: Using Commodity Trading Data for Accountability

Author:
Alexander Malden and Denis Gyeyir
Publication Date:
12-2020
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
The coronavirus pandemic has severely impacted the Ghanaian economy, with the IMF projecting that growth will slow to just 1.5 percent in 2020 compared to December 2019’s projection of 5.8 percent. The country, like many oil-rich states, is facing the challenge of responding to the pandemic with reduced government revenues resulting from the oil price crash. The coronavirus has also exacerbated the country’s debt sustainability issues, which were already on the rise prior to the pandemic. Ghana is still a relatively new oil producer, with first production from its Jubilee field occurring in November 2010 and the first cargo sold in early 2011. However, the sector represents a significant source of revenue. Ghana’s oil revenues totaled USD 938 million in 2019. Around USD 802 million of this amount, or 86 percent, came from cargos of oil sold by the Ghana National Petroleum Company (GNPC). This oil represents the state’s share of production that it derives from in-kind royalty payments and GNPC’s carried and participating interest (CAPI) in the three oil-producing projects in the country. GNPC oil sales equaled a full nine percent of Ghana’s government revenue in 2019. Responding to the pandemic with reduced government revenues makes it more important than ever that citizens are able to analyze GNPC’s oil sales activities. In this context, in this report the authors demonstrate how publicly available data on the state’s oil sales activities can be used by civil society organizations (CSOs), government, media and other oversight actors to hold the government, GNPC and trading companies accountable for how they sell and manage Ghana’s oil and its revenues. Commodity trading activities are often opaque and do not receive the same level of scrutiny as a state’s upstream operations. This opacity can create opportunities for governance and corruption risks that result in the loss and mismanagement of potential revenues. However, Ghana is one of the most transparent countries in reporting on its commodity trading activities. GNPC, the Ministry of Finance, the Bank of Ghana, the Public Interest and Accountability Committee and Ghana Extractive Industries Transparency Initiative (GHEITI) all disclose information on the state’s oil sales activities. As one example, the MoF has disclosed information on the volume, unit price, date of sale and value for every cargo sold by GNPC to date.
Topic:
Debt, Oil, Accountability, Commodities, Trade, and COVID-19
Political Geography:
Africa and Ghana

15. Born Out of Necessity: A Debt Standstill for COVID-19

Author:
Patrick Bolton, Lee Buchheit, Pierre-Olivier Gourinchas, Mitu Gulati, Chang-Tai Hsieh, Ugo Panizza, and Beatrice Weder di Mauro
Publication Date:
04-2020
Content Type:
Policy Brief
Institution:
Economics for Inclusive Prosperity (EfIP)
Abstract:
Rich and poor countries alike are facing an unprecedented economic crisis as they attempt to contain the impact of the COVID-19 pandemic. A downturn of this magnitude can cause tremendous long-term damage, with critical economic linkages between employees, businesses, and banks at risk of disappearing forever. Scores of firms will close permanently unless urgent action is taken. The threat is even more significant for emerging economies, where the economic costs of social distancing are likely to be higher, and where vulnerable small and medium sized enterprises with low cash reserves account for a much larger share of the economy than in rich countries, which can rely on extensive social and economic safety nets. Poor countries, moreover, have far more precarious health-care systems. The funds required to support vulnerable workers and businesses, and to care for COVID-19 patients, could be as high as 10% of their GDP. As a comparison, in the US the rescue measures passed in the last month alone account for at least 10% of GDP, and are likely to increase even more. A number of European countries have commited loans, equity injections and guarantees up to 35% of GDP. The COVID-19 crisis has led to a sudden collapse in capital flows to emerging and developing countries. According to estimates by the Institute of International Finance, non-resident portfolio outflows from emerging market countries amounted to nearly $100 billion over a period of 45 days starting in late February 2020. For comparison, in the three months that followed the explosion of the 2008 global financial crisis, outflows were less than $20 billion.
Topic:
Debt, Economics, International Political Economy, GDP, Business, Macroeconomics, Pandemic, COVID-19, and Credit
Political Geography:
Global Focus

16. Should We Worry About Corporate Leverage?

Author:
Şebnem Kalemli-Özcan
Publication Date:
10-2019
Content Type:
Policy Brief
Institution:
Economics for Inclusive Prosperity (EfIP)
Abstract:
There has been a large increase in corporate leverage in many countries since the early 2000s. Figure 1 plots corporate debt to GDP since 2002 for different groups of countries. With the exception of the U.S., both advanced economies and emerging markets have corporate debt exceeding GDP since 2005. U.S. corporate debt is also on an increasing trend. The fastest growth in corporate debt has been observed in emerging markets. A closer look will reveal that China and other fast growing emerging countries in Asia drive most of the increase in corporate debt for the emerging markets.
Topic:
Debt, Economics, Markets, Regulation, Multinational Corporations, and Economic Policy
Political Geography:
United States and Global Focus

17. Are Interest Payments on Debt Derailing Fiscal Consolidation?

Author:
Shebo Nalishebo and Florence Banda-Muleya
Publication Date:
06-2018
Content Type:
Policy Brief
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
This policy brief provides a review of the performance of the first quarter of the 2018 National Budget. The paper provides context by looking at both the revenue and expenditure trends during the last three years when Government instituted some fiscal adjustment measures to bring the country back to a path of fiscal fitness. In analysing the 2018 Budget, the first quarter preliminary outturns are compared to the approved Budget for 2018, the projected performance for the first quarter as well as the first quarter of 2017. We assess fiscal fitness over the last three years and determine that fiscal consolidation had begun. While fiscal performance was generally high, budget credibility and sustainability were low. In the first quarter of 2018, revenues were higher than planned and most expenditures were within the projected amounts. Nonetheless, interest payments were much higher than expected and are likely to be a major source of spending overruns in 2018.
Topic:
Debt, Government, Budget, Public Debt, and Revenue Management
Political Geography:
Africa and Zambia

18. Eurobonds Repayment - Limiting the Risk of Default

Author:
Shebo Nalishebo and Albert Halwampa
Publication Date:
09-2017
Content Type:
Policy Brief
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
In recent years, the Zambian economy has been growing strongly and the country has increasingly been faced with the need to plug huge infrastructural gaps. However, the slowing down of bilateral and multilateral financing due to austerity measures in developed economies and the World Bank’s reclassification of Zambia as a lower middle income country has led financiers to divert concessional loans to other needy countries in the low income bracket. Consequently, Zambia has had to diversify its budget and project financing options by issuing Eurobonds which are commercial borrowings by governments in currencies other than their own - in Zambia’s case, it is denominated in US dollars. Since 2012, the Zambian Government has issued two ten-year sovereign bonds collectively worth US$1.75 billion to mainly finance infrastructure projects. These two bonds amounted to 37% of Zambia’s external debt in 2014. With an average coupon rate of 6.9%, the two bonds have bullet repayment structures, implying that lump sum principal payments will be paid at the end of their respective ten-year maturity periods. The coupon rate is the interest rate at the time of issuance. Notwithstanding the high interest payments of over US$125 million annually, the bullet structure of the two bonds may have significant repayment risks as the country is expected to pay out the US$1.75 billion within a two-year period (in 2022 and 2024). The country may experience difficulty in repaying or refinancing the face value at maturity if the money is not spent in activities with high economic returns and if there are adverse changes in its exchange rate or international market conditions. The risks are already on the horizon – the recent depreciation of the Kwacha has increased debt servicing costs, while the low copper prices have reduced the much-needed export revenues used to service debt. Has Zambia dug itself into another debt hole? What measures can be put in place to mitigate the risk of a pending default
Topic:
Debt and International Development
Political Geography:
Global Focus

19. Does the Level of Public Debt Matter?

Author:
Susan Schadler
Publication Date:
04-2016
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
Research on links between the level of a country’s public debt and its broader economic developments has been heatedly debated in the economic literature. Two strands of the research stand out — one linking the level of debt to a country’s GDP growth rate and the other examining the debt level as an EWI of economic crises. As a broad generalization, research at the moment favors the view that high levels of debt are not a cause, in and of themselves, of low growth nor are they particularly good predictors of impending economic or even debt crises. In principle, the empirical findings have obvious implications for policy makers confronting the question of how to fashion policies (and fiscal policy in particular) when a country has a high debt burden. The IMF, as both a contributor to the literature and an adviser concerned with preventing or dealing with debt crises, has a particularly important stake in navigating the findings. Whether in its surveillance (routine annual advice to all member countries) or the construction of its lending programs to support countries in or near crisis, the IMF must answer the question “how much does the level of debt matter?” Despite the empirical research that casts doubt on the importance of debt, the level of debt figures prominently in the algebra of debt sustainability and the IMF’s real world policy advice. This policy brief examines the nexus of the relatively strong conclusions coming from the academic research and the IMF’s policy advice. It addresses the following question: given that the broad conclusion from the academic literature is that the level of debt itself is not systematically bad for growth or stability, why does the debt level seem to figure rather prominently in the IMF’s policy advice and conditionality?
Topic:
Debt, Development, Economics, International Monetary Fund, Financial Crisis, GDP, and Global Markets
Political Geography:
Global Focus

20. Ukraine and the IMF's Evolving Debt Crisis Narrative

Author:
Susan Schadler
Publication Date:
11-2015
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
Against the International Monetary Fund’s (IMF’s) fraught experience with crises where debt restructuring is needed, Ukraine’s recent restructuring agreement has been a success. Several factors — in particular, Ukraine’s geopolitical position and the composition of its creditors — facilitated official support for the deal. As these are unlikely to be replicated in future debt crises, the IMF still needs a revamping of its policies and approach in crises requiring debt restructuring. This policy brief examines a number of key challenges in the evolution of a coherent role for the IMF in future crises.
Topic:
Debt, Political Economy, International Monetary Fund, Financial Crisis, and Global Markets
Political Geography:
Ukraine

21. From Populist Destabilization to Reform and Possible Debt Relief in Greece

Author:
William R. Cline
Publication Date:
08-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Using his European Debt Simulation Model (EDSM), Cline examines whether and to what extent additional debt relief is needed in Greece under the new circumstances. Greece's debt burden is significantly lower than implied by the ratio of its gross debt to GDP, because of concessional interest rates on debt owed predominantly to the euro area official sector. The IMF's call for debt relief recognizes the lower interest burden but argues that the gross financing requirement is on track to exceed a sustainable range of 15 to 20 percent. But in the Fund's June Debt Sustainability Analysis that threshold would not be exceeded until after 2030. A sustainability diagnosis based on such a distant future date would seem at best illustrative rather than definitive. The euro area creditors might, nonetheless, be well advised to provide two types of interest relief: an earmarked portion of interest otherwise due to finance a public works employment program; and additional interest relief to compensate for budget shortfalls caused by growth below plan levels. The sovereign debt situation should be alleviated by carrying out the bank recapitalization directly from the European Stability Mechanism to the banks, rather than through the sovereign as the intermediary. The large increase in the ratio of gross debt to GDP imposed by bank recapitalization is mostly an optical illusion because there would be a corresponding rise in state assets, but this increase could, nonetheless, further erode perceptions of sustainability.
Topic:
Debt, Economics, International Monetary Fund, Financial Crisis, and Budget
Political Geography:
Greece

22. Fiscal Tightening and Economic Growth: Exploring Cross-Country Correlations

Author:
Paolo Mauro and Jan Zilinsky
Publication Date:
09-2015
Content Type:
Policy Brief
Abstract:
The global financial and economic crisis that began in 2008 has rekindled the debate on the impact of fiscal policy on economic growth. At the outset of the crisis the focus—particularly in the United States—was on whether fiscal stimulus (an expansion in the fiscal deficit) boosts economic growth. Since 2011 or so, with the depth of the crisis becoming more severe in some European countries and Greece in particular, the emphasis of the debate has shifted to whether fiscal adjustment (a reduction in the fiscal deficit) curtails economic growth. Public discourse has been heavily influenced by simple charts analyzing the correlations between measures of fiscal "austerity" and economic growth for small samples of countries over limited time periods. Mauro and Zilinsky analyze the correlations in the data starting from the simplest and gradually building up, in a step-by-step, transparent manner, to multivariate regressions based on various samples of countries for different periods. The results show that simple correlations are no longer significant when considering slightly longer sample periods and omitting outliers, like Greece, from the sample. In multivariate regressions using broader samples, a tightening of fiscal policy is significantly associated with lower economic growth only in some specifications and estimation samples. On the whole, the data offer partial support to the notion that fiscal choices and output growth are correlated.
Topic:
Debt, Economics, and Financial Crisis
Political Geography:
Global Focus

23. Russia’s Hidden Underbelly of Debt

Author:
Maya Rostowska
Publication Date:
07-2014
Content Type:
Policy Brief
Institution:
The Polish Institute of International Affairs
Abstract:
Despite the reigning consensus that the Russian economy is facing trouble ahead, some indicators suggest that the situation is not as dire as first appeared. Moreover, it may seem that the fiscal situation in the country—particularly its copious foreign currency reserves and substantial sovereign wealth funds—could still help extricate Russia from its economic difficulties. However, the very difficult budgetary situation in the regions and the staggering levels of debt of its companies suggest that economic problems could hit the country hard. Investors should remain vigilant of social and political tensions and the possible further deterioration of the business environment in Russia.
Topic:
Debt, Economics, Politics, Governance, and Budget
Political Geography:
Russia

24. Germany and the Future of the Eurozone

Author:
Sebastian Plóciennik
Publication Date:
01-2014
Content Type:
Policy Brief
Institution:
The Polish Institute of International Affairs
Abstract:
Although the euro has survived the most severe phase of the current crisis, its future is still uncertain. The fate of the common currency will depend not only on the condition of the European economy, but also the priorities of its biggest player—Germany. So far that country has been strong enough to enforce its own vision of integration based on neoliberal reforms and austerity measures. Since the side effects of this prescription have been rising costs and risks, Berlin's new government will consider a range of different solutions, including in extremis a controlled and partial break-up of the Eurozone. For Poland, this volatility creates a challenging environment with risks, but also creates chances for Warsaw to increase its influence over the evolution of EU integration in this field.
Topic:
Debt, Economics, Monetary Policy, Financial Crisis, and Reform
Political Geography:
Europe and Germany

25. A Proposed Code to Discipline Local Content Requirements

Author:
Gary Clyde Hufbauer, Jeffrey J. Schott, and Cathleen Cimino
Publication Date:
02-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Proponents of liberalized trade and finance were relieved when the global economic crisis in 2008 produced a broad range of pledges from countries around the world to avoid new barriers to trade and investment (see Evenett 2013). These promises, designed to avert a replay of the Great Depression of the 1930s, were largely honored when it came to classic forms of protection (tariffs and quotas). But the spirit of that pledge was violated as countries shifted from traditional forms of protection to behind-the-border nontariff barriers (NTBs), including local content requirements (LCRs)—policies mandating that local suppliers of goods, services, and even entire projects be favored by governments and private firms, even when foreign firms offer lower costs, better quality, and faster delivery.
Topic:
Debt, Economics, International Trade and Finance, Markets, Financial Crisis, and Reform

26. Income Inequality Developments in the Great Recession

Author:
Tomas Hellebrandt
Publication Date:
01-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The Great Recession, which cost tens of millions of jobs, a collapse of asset values around the world, and threatened the global financial system, has generated renewed concern over the long-standing issue of the fairness of the distribution of wealth and income in many societies. Economic inequality has increased in the United States and many other advanced economies over the past 20 to 30 years. This trend generated less worry in the boom years, when unemployment rates were low and cheap credit enabled consumers to borrow and maintain higher standards of living, masking the impact of growing income disparity on consumption patterns and perceptions of well-being.
Topic:
Debt, Economics, International Trade and Finance, Poverty, Social Stratification, and Financial Crisis
Political Geography:
United States, United Kingdom, Germany, Spain, Italy, and Ireland

27. The IMF's Preferred Creditor Status: Does It Still Make Sense After the Euro Crisis?

Author:
Susan Schadler
Publication Date:
03-2014
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
Throughout the history of IMF lending, the institution has had PCS — that is, distressed countries borrowing from the IMF are expected to give priority to meeting their obligations to the IMF over those to other (private or official) creditors. This status is a defining characteristic of the IMF's role in financial crises: it provides a high degree of confidence that IMF resources are safe even when other creditors of the distressed country face substantial uncertainty about whether they will be repaid in full. In other words, the IMF, which lends to some of the riskiest countries in the world, faces minimal risk that its resources could be compromised by a debtor country's difficulties in servicing its debt. It does so, however, with the confidence that comes from its role in helping to formulate and monitor a program of policies that are strongly expected to return the country to stability.
Topic:
Debt, Economics, International Monetary Fund, Monetary Policy, and Financial Crisis
Political Geography:
Europe

28. Afghanistan's Looming Fiscal Crisis: What Can Be Done?

Author:
William A. Byrd
Publication Date:
08-2014
Content Type:
Policy Brief
Institution:
United States Institute of Peace
Abstract:
Afghanistan faces a fiscal crisis that reflects worsening domestic revenue shortfalls since 2011, which could reach $1 billion in 2014 compared with the 2011 outlook. The massive theft and fraud at Kabul Bank, failure of mining activities to pay taxes and royalties, and mislabeling of some commercial imports as duty-free are among other contributing factors. Turning the fiscal crisis around will take time, but a legitimate, credible new Afghan government coming into office is essential. Quality leadership and management teams in the Ministry of Finance and the Central Bank will be crucial for success. Urgent measures are needed to turn around poor revenue performance, including strong signals from the top, possible exploitation of limited new revenue sources, and cooperation among different agencies to reduce smuggling and contain revenue leakages. Accelerated recovery of stolen and lost Kabul Bank assets should be a priority, which could provide over $100 million per year of extra fiscal space for the budget. Reforms of the revenue system need to be initiated, including introduction of a value-added tax, and possibly reform of the revenue and customs services. Expenditures will need to be cut. This requires the elimination of unnecessary and wasteful expenditures as well as the meaningful prioritization of programs within a tight resource envelope. Additional international fiscal support will be needed to help stabilize the budget in the short run. Linking aid for the Afghan discretionary budget to increases in domestic revenues and Kabul Bank recoveries would make sense.
Topic:
Debt, Economics, Foreign Aid, and Financial Crisis
Political Geography:
Afghanistan

29. Was the ECB's Comprehensive Assessment up to standard?

Author:
Willem Pieter De Groen
Publication Date:
11-2014
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The Comprehensive Assessment conducted by the European Central Bank (ECB) representsa considerable step forward in enhancing transparency ineuro-area banks' balance sheets. The most notable progress since the previous European stress test has been the hamonisation of the definition of non-performing loans and other concepts as well as uncovering hidden losses, which resulted in a €34 billion aggregate capital-chargenet of tax. Despite this tightening,most banks were able to meet the 5.5% common equity tier 1 (CET1) threshold applied in the test, whichsuggests that the large majority of the euro-area banks have improvedtheir financial position sufficiently to no longer constrainthem in financing the economy.Our own estimation based on the detailed results, however,provide a more nuanced picture, with a large numberof the banks still highly leveraged and in many cases unable to meet the regulatory capital requirementsthat will be introduced in the coming years underthe adverse stress test scenario.
Topic:
Debt, Economics, International Trade and Finance, and Global Recession
Political Geography:
Europe

30. Why Bail-In Securities Are Fool's Gold

Author:
Avinash D. Persaud
Publication Date:
11-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Bailouts and bail-ins of failing financial institutions have been hotly disputed in the global financial crisis of the last five years. At the height of the crisis, several failing banks were bailed out with taxpayer money so they could service their debts, but as public outrage mounts, policymakers are increasingly looking at bailing in these institutions before using taxpayer funds. Bail-ins, also called haircuts, require the troubled institution's creditors to write off some of the debt or agree to a restructuring of the debt, which reduces their holdings. The public has demanded the imposition of these costs on creditors and bond - holders, arguing that if bad lending as well as bad borrowing went unpunished it would be encouraged. Additionally, the yawning fiscal deficits that have followed bailouts have led to unpopular fiscal retrenchment.
Topic:
Debt, Economics, Markets, Financial Crisis, and Reform
Political Geography:
United States

31. Rapid Growth in Emerging Markets and Developing Economies: Now and Forever?

Author:
Giang Ho and Paolo Mauro
Publication Date:
12-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
With economic growth in advanced economies still lackluster or elusive, much hope for world prosperity rests on projections of continued strength in developing and emerging economies. On average, the economic growth rate in these economies was roughly twice as high—on an unweighted per capita basis—as in the advanced economies during the past decade. According to the forecasts analyzed in this Policy Brief, this superior performance is projected to extend into the next two decades.
Topic:
Debt, Economics, International Trade and Finance, and Political Economy

32. IMF Lending Practices and Sovereign Debt Restructuring

Author:
Domenico Lombardi, James M. Boughton, and Skylar Brooks
Publication Date:
06-2014
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
The IMF has struggled for decades to develop a set of lending practices that enable sovereign borrowers to resolve serious debt problems and restore economic growth, but also respect the right of private financial markets to enter into and enforce contractual obligations. The challenge has always been to operate under a well-defined set of principles while dealing with each situation in a way that takes account of relevant circumstances. Recently, the international financial crisis that began in 2008 and the subsequent European sovereign debt crisis have raised this challenge to new heights. In providing €30 billion to Greece — the largest financial package ever granted to a single country — the IMF invoked greater discretion in its lending decisions to counteract potential "systemic" crises. By doing so, it entered a program without a restructuring agreement.
Topic:
Debt, Economics, International Trade and Finance, International Monetary Fund, and Reform

33. Debt Sanctions Can Help Ukraine and Fill a Gap in the International Financial System

Author:
Anna Gelpern
Publication Date:
08-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The escalating crisis in Ukraine has prompted the United States and Europe to impose the toughest economic sanctions against Russia since the end of the Cold War. Continued instability and military conflict in eastern Ukraine are straining Ukrainian finances. Despite a generous international support package, the government faces shrinking revenues, rising costs, and a spike in foreign debt payments over the next two years.
Topic:
Cold War, Debt, and Economics
Political Geography:
Russia, Ukraine, and Asia

34. Why the ECB should cut borrowing costs in periphery

Publication Date:
06-2013
Content Type:
Policy Brief
Institution:
Oxford Economics
Abstract:
The European Central Bank has postponed any plans to introduce targeted measures to reduce the cost of borrowing for small and medium-sized businesses in the credit-starved peripheral Eurozone economies. Given the widening gap between the lower costs of borrowing for companies in Germany and France and the higher costs in the periphery, we think that there is a strong case for the ECB to take action. Simulations using our Global Macroeconomic Model show that if half the tightening in credit conditions seen since 2008 were to be reversed within two years, Eurozone GDP would be 0.7% higher by the end of 2017 than under our baseline forecast. There would be over 400,000 fewer people unemployed. This would be particularly beneficial for peripheral Eurozone risk assets.
Topic:
Debt, Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Europe and Germany

35. Three Options for the EU: Assessing the EU's powers in a true economic and political union

Author:
Teija Tiilikainen
Publication Date:
09-2013
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
Safeguarding the EU's unity in the long-term development of the EMU is currently one of the major challenges for the Union. The de facto adjustments made to the EU's economic and fiscal powers due to the economic and financial crisis, including the completion of the Banking Union, create pressures to address the treaty-based division of powers and to strengthen the democratic control of the powers executed by the Union. The need to back the EU's macroeconomic goals with fiscal instruments has been made evident by the economic crisis; the position of these instruments outside the common budget might become increasingly controversial. A further increase in economic solidarity (jointly guaranteed debt, taxation power) might jeopardize the EU's stability and democratic legitimacy if carried out in the current political and institutional framework. A system of constitutional and fiscal federalism would produce a more stable outcome, but would require major changes in the EU's democratic system and system of policy implementation, in its external policies and the way its constitutional powers are arranged.
Topic:
Debt, Economics, Regional Cooperation, Monetary Policy, and Financial Crisis
Political Geography:
Europe

36. China's Credit Boom: New Risks Require New Reforms

Author:
Nicholas Borst
Publication Date:
10-2013
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The Chinese financial system has undergone almost continuous reform since the dismantling in the 1980s of the Soviet- style system where only one state-controlled bank existed. Government efforts to create a financial system that adheres to international best practices of commercial lending accelerated in the 1990s (box 1). Reforms progressed quickly during this period, but they were accompanied by excessive credit growth and a massive increase in nonperforming loans, threatening the solvency of some banks and the financial stability of the entire economy. The risk of these weaknesses was dramatized by the 1997 Asian financial crisis, in which several nearby countries were crippled by plunging currency values, rising interest rates and difficulties servicing their foreign-held debts.
Topic:
Debt, Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
China

37. Lehman Died, Bagehot Lives: Why Did the Fed and Treasury Let a Major Wall Street Bank Fail?

Author:
William R. Cline and Joseph E. Gagnon
Publication Date:
09-2013
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Five years after the Federal Reserve and the Treasury allowed the investment bank Lehman Brothers to fail, their actions (or inaction) remain a focus of debate. Some argue that it was an inconsistent policy to have let Lehman fail while making emergency loans to save other large financial institutions in the same time frame. In this Policy Brief we present evidence that the Fed and Treasury had a sound reason to have bailed out other institutions while letting Lehman fail. Simply put, Lehman was insolvent—probably deeply so—whereas the other institutions arguably were solvent. In addition, the other institutions had abundant collateral to pledge, whereas what little collateral Lehman had to pledge was of questionable quality and scattered across many affiliated entities. Thus, federal officials, at least in hindsight, appear to have followed the dictum of Walter Bagehot (cited above), which has guided central banks for almost 150 years.
Topic:
Debt, Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
United States

38. Towards a Deeper EMU: An assessment of political divisions within the EU

Author:
Juha Jokela
Publication Date:
10-2013
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
Policymakers, observers and the media have referred to a vast number of divisions in crisis-torn Europe. The EU is divided between north and south or creditors and debtors. Some have emphasised the emerged division between anti-EU and pro- EU forces. Significantly, these divisions are also manifested within the eurozone, in the form of the current differences between the French and German views, and the increasing role of the populist movements in many euro countries. Yet others have highlighted the boundary between the eurozone and the rest of the EU, and suggested that the euro countries now form the core of the Union. Relatedly, some of the non-euro members are distancing themselves from the EU – most notably the UK – while many others aim to secure their influence in the Union, even if euro membership may have been put on the back burner.
Topic:
Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:
United Kingdom, Europe, and Germany

39. ARBITERS AMISS: THE FAILINGS AND SHORTCOMINGS OF INSTITUTIONS GOVERNING THE GLOBAL FINANCIAL SYSTEM

Author:
Paul Blustein
Publication Date:
10-2013
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
Myriad dangers beset the global economy. The US Federal Reserve is trying to curb its ultra-easy money policy, a delicate operation that could plunge the world into recession if done too abruptly. The euro zone might fall back into turmoil. Japan's experiment with “Abenomics”1 could go sour. China's banking system looks shaky. Emerging economies are suffering large scale withdrawals of foreign funds.
Topic:
Debt, Development, Economics, International Monetary Fund, Foreign Aid, Fragile/Failed State, and Financial Crisis
Political Geography:
China

40. Geopolitical Shifts in the Eastern Mediterranean

Author:
Patrick Nopens
Publication Date:
02-2013
Content Type:
Policy Brief
Institution:
EGMONT - The Royal Institute for International Relations
Abstract:
Three major geopolitical events are putting the stability of the Eastern Mediterranean at risk. Most of the region is in a deep monetary and economic crisis. The Arab Spring is causing turmoil in the Levant and the Maghreb. Gas and oil discoveries, if not well managed, could further destabilise the region. At the same time, Russia and Turkey are staging a comeback. In the face of these challenges, the EU approaches the Greek sovereign debt crisis nearly exclusively from a financial and economic viewpoint. This brief argues that the EU has to develop a comprehensive strategy for the region, complementing its existing multilateral regional framework with bilateral agreements in order to secure its interests in the Eastern Mediterranean.
Topic:
Security, Debt, Oil, Regime Change, and Financial Crisis
Political Geography:
Russia, Europe, Turkey, and Arabia

41. A case for adjusting fiscal consolidation in the eurozone

Author:
Xavier Vanden Bosch
Publication Date:
01-2013
Content Type:
Policy Brief
Institution:
EGMONT - The Royal Institute for International Relations
Abstract:
Fiscal consolidation is essential to ensure the sustainability of euro zone countries' public debt. However, as a principle, consolidation should not be pursued at a pace unnecessarily undermining growth in the short term. Repeated downward revisions of growth call for the use of the flexibility foreseen in the EU fiscal framework. The Commission should adapt the deadlines for fiscal correction to prevent excessive, pro-cyclical adjustment in 2013. In turn, adequate surveillance and coordination must ensure structural adjustments constitute the core of fiscal consolidation plans.
Topic:
Debt, International Trade and Finance, Monetary Policy, and Reform
Political Geography:
Europe

42. Updating The EMU: Differentiated economic integration in the European Union

Author:
Samu Kurri
Publication Date:
11-2013
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
The financial and economic crisis has reinforced the two-layer economic integration structure in the EU. Many of the new rules and structures created during the crisis have focused on a solution to the euro crisis and are thus euro area-specific. There is little evidence, however, that the situation would have dramatically changed compared to the Maastricht EMU. All of the changes are still in line with the basic idea that all EU countries will join the euro when they are ready to do so. One of the key questions in the near future is likely to centre on the contours of the euro area specific decision-making, its relationship to the EU as a whole, and its institutions and procedures. Even if the Euro group remains 'formally informal', it has managed to transform itself into a de facto institution within the EU, and its role and weight is likely to increase rather than decrease.
Topic:
Debt, Economics, Monetary Policy, Financial Crisis, and Reform
Political Geography:
Europe

43. The Asset Quality Review and Capital Needs: Why re-capitalise banks with public money?

Author:
Daniel Gros
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
There are three aggregate numbers that describe the problem the Single Supervisory Mechanism (SSM) is inheriting: the 130 banks under its direct supervision hold assets worth 250% of the euro area's GDP, their capital is equivalent to only 4% of their assets' value and they have made zero profits, in the aggregate, over the last four years.
Topic:
Debt, Economics, Markets, Financial Crisis, and Reform
Political Geography:
Europe

44. Net Neutrality and Mandatory Network-Sharing: How to disconnect the continent

Author:
Andrea Renda
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
A lively debate emerged on the proposed "Connected Continent" legislative package presented by the European Commission in September 2013. The package contains a proposed rule on the 'open Internet', which was heavily discussed in European Parliament hearings in early December. This commentary argues that while the proposed rule is in principle balanced and appealing, it is utterly impractical due to the enormous uncertainty that its application would entail. At the same time, the rule is very far from what neutrality proponents have argued for almost a decade: rather than the place for internet freedom, it would transform the Web into a place requiring constant micro-management and tutoring of user behavior. Both arguments lead to the conclusion that the current proposal should be at once reformed and analysed under a more holistic lens. On the one hand, Europe should launch an ambitious project for the future, converged infrastructure by mobilising resources and reforming rules to encourage investment into ubiquitous, converged, 'always on' connectivity. On the other hand, enhanced legal certainty for broadband investment could justify a more neutrality-oriented approach to traffic management practices on the Internet. The author proposes a new approach to Internet regulation which, altogether, will lead to a more balanced and sustainable model for the future, without jeopardising user freedom.
Topic:
Debt, Economics, Monetary Policy, Infrastructure, and Financial Crisis
Political Geography:
Europe

45. Policy Lessons for Macroeconomic and Financial Crisis Management in the Southern and Eastern Mediterranean

Author:
Rym Ayadi and Willem Pieter De Groen
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The 2007-09 global financial crisis led to a virtual collapse in economic activity and increased financial volatility worldwide. For the developing countries, the main channel of transmission has been a drop in external transactions, such as trade, financial and capital flows, and remittances. The southern and eastern Mediterranean countries (SEMC) have also faced declining economic activity, although there seems to be considerable variation in the relative magnitudes and timing of the decline. Most of the economies in the Mediterranean basin have had delayed but longer-lasting consequences as a result of the crisis, driven mostly by their endemic trade and investment ties with the EU and the Gulf Cooperation Council (GCC) countries.
Topic:
Debt, Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
Europe

46. Strong Governments, Weak Banks

Author:
Paul De Grauwe and Yuemei Ji
Publication Date:
11-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
One of the more troublesome features of banks is that they still hold so little equity. In 2013 the capital and reserves of EU banks amounted to only 7.6% of total balance sheets. Well-run businesses outside the banking sector typically hold equity shares of 20%, 30% or more of their balances sheets. For good reasons; these well-run firms know that shocks can occur that could wipe out large parts of their balance sheets. Good business strategy thus leads these firms to hold sufficiently large buffers to avoid bankruptcy.
Topic:
Debt, Economics, and Monetary Policy
Political Geography:
Europe

47. The New European Framework for Managing Bank Crises

Author:
Stefano Micossi, Jacopo Carmassi, and Ginevra Bruzzone
Publication Date:
11-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The European Commission proposal for a Regulation establishing a European Single Resolution Mechanism (SRM) for banks is now under consideration before the European Parliament and the Council. The main principles and tools applicable for resolving a failing bank are contained in the June 2012 Commission proposal for a Directive on bank recovery and resolution (BRR), aimed at harmonising crisis management and resolution tools in EU member states, which is also under consideration by the European legislators. Any discussion of the new system must therefore be based on both proposals.
Topic:
Debt, Economics, International Trade and Finance, Markets, Monetary Policy, and Reform
Political Geography:
Europe

48. Pushing the Turbo Button: What Next for the Polishâ?"Romanian Strategic Partnership?

Author:
Stanislav Secrieru, Lukasz Kulesa, Agnes Nicolescu, and Anita Sobják
Publication Date:
11-2013
Content Type:
Policy Brief
Institution:
The Polish Institute of International Affairs
Abstract:
With the global economic downturn and its implications for the broader political and security architecture of the EU, the Polish—Romanian Strategic Partnership signed in 2009 is now ripe to take the positive relationship to a new level and to be further fleshed out. To this end, political coordination needs to be upgraded for promoting common interests, such as economic stability and solidarity within the Union, continued support to agriculture and cohesion policy as an important priority for EU funding, increasing the energy security of the region, engaging the neighbourhood, particularly Moldova and Ukraine, and maintaining the relevance of CSDP and of article 5 of the Washington Treaty high on the European agenda. The management of instability and protracted conflicts in their neighbourhood are also among their shared concerns. Translating these common priorities into concrete actions should aim at pushing the "turbo button" on the partnership, and help both countries achieve their goals.
Topic:
Security, Debt, Diplomacy, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:
Europe

49. Spain's fiscal targets should be eased

Publication Date:
01-2012
Content Type:
Policy Brief
Institution:
Oxford Economics
Abstract:
The Spanish government has announced that the fiscal deficit for 2011 may be even worse than expected, perhaps even exceeding 8% of GDP. In response to this overshoot, the authorities have so far announced additional spending cuts and tax rises amounting to €15bn. But fiscal tightening will have to be even more severe if the government wants to meet its 4.4% of GDP deficit target for 2012.
Topic:
Debt, Economics, Government, Monetary Policy, and Financial Crisis
Political Geography:
Spain

50. Fixing Mortgage Finance: What to Do with the Federal Housing Administration?

Author:
Mark A. Calabria
Publication Date:
02-2012
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
While Fannie Mae, Freddie Mac, and private subprime lenders have deservedly garnered the bulk of attention and blame for the mortgage crisis, other federal programs also distort our mortgage market and put taxpayers at risk of having to finance massive financial bailouts. The most prominent of these risky agencies is the Federal Housing Administration (FHA).
Topic:
Debt, Economics, Government, and Financial Crisis
Political Geography:
United States