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101. Can the eurozone countries still live together happily ever after?

Author:
Marcello Messori
Publication Date:
03-2011
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
After the Greek public debt crisis and the bilateral loans to Greece from the other members of the European Monetary Union (EMU), in May 2010 the Ecofin Council launched the European Financial Stabilization Mechanism (EFSM). In June of the same year the EMU countries instituted the European Financial Stability Facility (EFSF). These two mechanisms, which are charged with providing support to EMU countries in “exceptional difficulty”, received their baptism of fire with Ireland in January 2011 and successfully made their first bond issue on the market.
Topic:
Debt, Economics, and Monetary Policy
Political Geography:
Europe and Greece

102. Restoring financial stability in the euro area

Author:
Christian Kopf
Publication Date:
03-2011
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The pricing of sovereign credit risk is a necessary component of the financial architecture of the European Monetary Union. However, unnecessarily high and volatile risk premia on government bonds are currently preventing effective financial intermediation within the euro area, thereby inhibiting its economic recovery. Several proposals have been made on how these risk premia should be brought down, namely i) permanent pooling of funding through joint bond issuance, ii) temporary liquidity assistance through multilateral funds, iii) debt buybacks using multilateral funds, and iv) debt restructuring.
Topic:
Debt, Economics, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:
Europe

103. 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

104. Governance of a Fragile Eurozone

Author:
Paul De Grauwe
Publication Date:
05-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
When entering a monetary union, member countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries' sovereigns into default. In this sense, the status of member countries of a monetary union is downgraded to that of an emerging economy. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise.
Topic:
Debt, Markets, Regional Cooperation, and Financial Crisis
Political Geography:
Europe

105. The New Stability and Growth Pact: Primum non nocere

Author:
Claudio Vicarelli and Marco Fioramanti
Publication Date:
03-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The recent economic and financial crises have shown the weakness of EU economic governance. A process of strengthening macroeconomic and fiscal surveillance started in the course of 2010; among other proposals, the European Commission suggested a new binding criterion of debt reduction: debt-to-GDP ratio is to be considered sufficiently diminishing if its distance with respect to the 60% of GDP reference value has reduced over the previous three years at a rate of the order of one-twentieth per year.
Topic:
Debt, Economics, International Trade and Finance, Financial Crisis, and Governance
Political Geography:
Europe

106. Has the financial crisis shattered citizens' trust in national and European governmental institutions? Evidence from the EU member states, 1999-2010

Author:
Felix Roth, Felicitas Nowak-Lehmann D., and Thomas Otter
Publication Date:
02-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The financial crisis has affected trust in national and European governmental institutions in different ways. This paper analyses the determinants of trust in the national and European institutions over the last decade and comes to the conclusion that inflation reduces citizens' trust only when the economy runs smoothly. In times of crisis, citizens do not worry about inflation but rather about jobs and the effects of a recession. Declining trust in national governments is related to an increase in unemployment in the EU-15 in all time periods, whereas trust in the European Commission and the European Parliament seems to be strongly associated with the situation in the real economy (unemployment and growth of GDP per capita) only in times of crisis. Yet in the EU-27, falling levels of trust in the national and European governmental institutions during times of crisis seem to be primarily related to an increase in government debt. In an EU-15 country sample, this negative relationship appears to be driven by countries that owe a larger share of their increase in government debt to aiding/bailing out their financial sector and the implementation of significant austerity measures.
Topic:
Debt, Economics, Financial Crisis, and Governance
Political Geography:
Europe

107. An evaluation of the French proposal for a restructuring of Greek debt

Author:
Christian Kopf
Publication Date:
06-2011
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
French commercial banks are proposing a swap of €85.5 billion in Greek government bonds maturing between 2011 and 2014 into a combination of new long-term Greek bonds with principal guarantee and cash payments. If this initiative were implemented under the proposed parameters, private creditors would only suffer a minimal haircut and official lenders would be provided with cash-flow relief of around €20 billion over the next three years, but the solvency of the Hellenic Republic would worsen significantly.
Topic:
Debt, Economics, and Financial Crisis
Political Geography:
Europe

108. State of the union Can the euro zone survive its debt crisis?

Publication Date:
04-2011
Content Type:
Working Paper
Abstract:
In the run-up to the global financial crisis, the euro area looked very much like a microcosm of the world economy. The region as a whole grew in line with its long-term trend, and its trade position with the outside world was broadly in balance. However, the euro area's aggregate position masked large variations across the member states. In some parts of the region (notably countries on the geographical periphery), demand grew consistently faster than output; in others (like Germany), the reverse was the case. Profligacy in the periphery was funded by thrift in the "core". This arrangement suited both sides.for a time at least. While countries in the periphery enjoyed debt-fuelled booms, countries such as Germany, where domestic demand was weak, could rely on exports to keep growing.
Topic:
Debt, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
Europe and Germany

109. European Debt Crisis: What Is The Way Out

Author:
Charles Wyplosz
Publication Date:
03-2011
Content Type:
Working Paper
Institution:
Center for Social and Economic Research - CASE
Abstract:
"The current European debt crisis is just bringing to the fore well-defined cracks in the Eurozone’s construction. Fiscal discipline was left in the careless hands of national governments, banking regulation and supervision was delegated to national authorities more interested in promoting national champions than in completing the Single Market. Moreover, crisis management was masterminded not by the Commission but by national governments. This leaves panicked policymakers with the firm view that economics is largely useless and that any policy can be pursued if it makes good political sense."
Topic:
Debt, Globalization, Markets, Macroeconomics, and Economic Integration
Political Geography:
Europe

110. 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

111. Lessons from the Asian Monetary Fund for the European Monetary Fund

Author:
Yonghyup Oh
Publication Date:
04-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The euro area is facing a challenge with Greece in danger of falling into sovereign default and some of its other members, the so-called 'GIPSY' nations, finding themselves in serious financial distress. Creation of a European Monetary Fund to deal more effectively with this type of situation is gaining support. This paper draws lessons from the Asian experience that might be applied to the current European development.
Topic:
Debt, Economics, International Trade and Finance, and Monetary Policy
Political Geography:
Europe

112. Will It Be Brussels, Berlin, or Financial Markets that Check Moral Hazard in Europe's Bailout Union? Most Likely the Latter!

Author:
Jacob Funk Kirkegaard
Publication Date:
10-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
So far so good for the European Union in preventing the Greek sovereign debt crisis from spiraling out of control in the short term. But with Greece in May 2010 requiring an unprecedented bailout from the European Union/IMF to avoid immediate default and 25 of the European Union's 27 member states currently subject to an “excessive deficit procedure” (European Commission 2010i), it remains evident that the European Union's existing fiscal surveillance framework patently failed both before and during the Great Recession and that Europe's leaders must head back to the drawing board for a required long term reform of the EU fiscal policy and surveillance framework.
Topic:
Debt, Economics, and Financial Crisis
Political Geography:
Europe and Greece

113. Sovereign Bankruptcy in the European Union in the Comparative Perspective

Author:
Leszek Balcerowicz
Publication Date:
12-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper distinguishes four alternative sovereign debt resolution mechanisms: pure market solutions, modified market solutions, crisis lending by the IMF and other institutions, and the proposed Sovereign Debt Restructuring Mechanism (SDRM). It is hard to find—at the general level of analysis—the unique advantages of SDRM. The assessment of the European Stabilization Mechanism will ultimately depend on its operation, especially whether it will be a tool of subsidizing countries in debt distress or an instrument of fiscal crisis lending. The present fiscal problems in the eurozone are due to the erosion of fiscal discipline and not to the lack of strong compensatory transfers within the eurozone. The right model to look at the conditions for the stability of the eurozone is not a single state but the gold standard–type system, a system of sovereign states with a (de facto) single currency. Based on this analogy and considering modern developments, three types of measures are needed to safeguard the stability of the eurozone: (1) measures that would reduce the procyclicality of the macroeconomic policies and of the economy; (2) reforms that would help the eurozone economies grow out of increased public debt; and (3) steps to increase the flexibility of the economy so that it can deal with the future shocks in a better way.
Topic:
Debt, Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
Europe

114. How Europe Can Muddle Through Its Crisis

Author:
Jacob Funk Kirkegaard
Publication Date:
12-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
As Europe's financial market contagion spreads to systemically important eurozone members, the region is echoing with "end-game scenarios" (Johnson and Boone 2010) and demands for major new steps by European policymakers (Financial Times 2010). Among these would be a European "fiscal transfer union," a new common eurozone bond, action by the European Central Bank (ECB) to monetize sovereign debts, and finally a eurozone breakup itself.
Topic:
Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe

115. Macroeconomic Surveillance Within the EU

Author:
Marek Dabrowski
Publication Date:
11-2010
Content Type:
Working Paper
Institution:
Center for Social and Economic Research - CASE
Abstract:
The new European Union (EU) economic governance package released by the European Commission on September 29, 2010 includes two major components, i.e., changes and amendments to the Stability and Growth Pact (SGP) and new regulation on the prevention and correction of macroeconomic imbalances within the EU and European Monetary Union (EMU). While the first piece offers a certain improvement in the EU fiscal surveillance rules the second one looks deeply flawed and operationally unenforceable.
Topic:
Debt, Financial Crisis, Governance, European Union, Macroeconomics, and European Monetary Union
Political Geography:
Europe

116. EU Administrative Conditionality and Domestic Downloading: The Limits of Europeanization in Challenging Contexts

Author:
Arolda Elbasani
Publication Date:
07-2009
Content Type:
Working Paper
Institution:
The Kolleg-Forschergruppe (KFG)
Abstract:
How and to what extent have European ideas transformed the political-administrative institutions in the candidate countries in the East? Which conditions work to mitigate and undermine the impact of the European Union (EU) in these contexts? Research on post-communist transformations, by and large, holds EU enlargement as a successful attempt of institutional transfer in the candidate countries. However, while the EU proved to be successful in the first wave of enlargement in the East, we know much less about its effects in 'borderline' cases that lack the will and/or the capacity to pursue required reforms, thus posing a real challenge to EU enlargement strategy. The paper aims to trace the effects of enlargement in challenging domestic environments focusing on public administration reform in post-communist Albania. Differently from the classic Europeanization literature, the bottom-up approach used here, seeks to bring to the fore the crucial role of domestic agency to download and sometimes mitigate European transfers in the national arena. Evidence from the case study shows that governing actors have used EU enlargement as a means to further their strategic goals – they have preferred to talk the talk of reform in order to reap the benefits associated with EU integration and broader external assistance, but also resist implementation of new rules that curtail the political control of the state and the ongoing system of spoils built throughout the post-communist transition. The EU's broad thresholds on administrative reform and the weak association between monitoring of progress and rewards have left ample space for the governing actors to merely pay lip service to the EU prescriptions, while getting full control of a poli-ticized administration.
Topic:
Cold War, Communism, Debt, and Democratization
Political Geography:
Europe

117. Emerging Market Business Cycles with Remittance Fluctuations

Author:
Ceyhun Bora Durdu and Serdar Sayan
Publication Date:
09-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper analyzes the implications of remittance fluctuations for various macroeconomic variables and Sudden Stops. The paper employs a quantitative two-sector model of a small open economy with financial frictions calibrated to Mexican and Turkish economies, two major recipients, whose remittance receipts feature opposite cyclical characteristics. We find that remittances dampen the business cycles in Mexico, whereas they amplify the cycles in Turkey. Their quantitative effects in the long run, approximated by the stochastic steady state are mild. In the short run, however, remittances have quantitatively large impacts on the economy, when the economy is borrowing constrained. This is because agents in the economy cannot adjust their precautionary wealth to sudden tightening in credit, hence, fluctuations in remittances get magnified through an endogenous debt-deflation mechanism. Our findings suggest that procyclical (or countercyclical) remittances can play a significant deepening (or mitigating) role for Sudden Stops.
Topic:
Debt, Economics, and Credit
Political Geography:
Europe, Turkey, Asia, North America, and Mexico

118. The New Capital Requirements Directive: What pieces are still missing from the puzzle?

Author:
Rym Ayadi
Publication Date:
09-2005
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
After almost seven years of hard work to produce a new substantive piece of legislation updating the current banking regulation for European credit institutions and investment firms – the Capital Requirements Directive (CRD) – it looks like its timely adoption is still uncertain. The main problem is the dissatisfaction of Parliament with its limited role in comitology and in the Lamfalussy process, which has led it to suspend 'temporarily' the comitology provisions of the CRD, casting doubt over the future ability to amend the legislation. The European Constitution addresses Parliament's concern about ensuring democratic accountability in the comitology process in Art. 36. The pause for reflection on the Constitution prompted by the no-votes in the French and Dutch referenda has re-ignited the issue and is forcing EU institutions to seek a new inter-institutional agreement on this issue.
Topic:
Debt, Economics, and Government
Political Geography:
Europe

119. Fiscal Perspectives in Europe: Convergence and Debt's Burden

Author:
Thierry Warin
Publication Date:
06-2005
Content Type:
Working Paper
Institution:
Minda de Gunzburg Center for European Studies, Harvard University
Abstract:
The paper addresses the question of the fiscal perspectives within the Economic and Monetary Union (EMU). By using a panel data analysis associated with an interpretation in terms of differences instead of levels, the results show a steady convergence of public deficits across the EMU, and that the EMU needs either to comply with the Lisbon agenda, or some kind of a growth strategy, or reduce the interest of the debt in order to regain some fiscal flexibility while abiding by the Stability and Growth Pact (SGP).
Topic:
International Relations, Debt, and Economics
Political Geography:
Europe

120. Privatization in Brcko District: Why It Is Different and Why It Works

Author:
Henry L. Clarke
Publication Date:
01-2004
Content Type:
Working Paper
Institution:
The Wilson Center
Abstract:
The Brcko District of Bosnia and Herzegovina is small, with less than 100,000 people. In 2001, about 30 public companies were selected for privatization. At the outset, there were good reasons to ask whether the District would have any success in privatizing them. Many of the public companies had been shut down for up to ten years, while the rest were operating at a small fraction of their pre-1991 output. There was not a single company that was profitable enough to be sold successfully on the basis of its performance, none had adequate working capital or marketing arrangements, many were deeply in debt, some had too many nonworking “employees” and the equipment of most companies that was not damaged during the war was worn out or obsolete.
Topic:
Debt, Government, Politics, and Privatization
Political Geography:
Europe, Bosnia, and Herzegovina