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1. The quickly fading memory of why and when bank capital is important

Author:
Jesper Berg, Nicolas Boivin, and Hans Geeroms
Publication Date:
04-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Less than fifteen years after the global financial crisis of 2007-2008, banks and policymakers are calling for deregulation and lower capital requirements in the financial sector. They dispute that the Basel framework, the global standards for regulating large international banks, should be implemented fully in the European Union. One concern is that stricter capital regulation will affect the competitiveness of European banks compared to those in the United States and will restrict loan provision in the EU, despite Europe’s significant investment gap. However, deregulation should not be confused with reducing capital requirements for banks. On balance, there is only limited empirical evidence that respecting the capital requirements necessary to support financial stability hampers credit to the economy, investment or economic growth in the long term. Only well-capitalised banks can continue financing the economy during economic setbacks, and weakening the implementation of the Basel standards increases the risks of a new financial crisis. Bank lending and access to financing surveys also show there is no credit crunch in the euro area at present and that capital requirements are not the primary constraint on credit provision. A detailed look at current banking regulation does not support the conclusion that European banks are more strictly regulated overall than US banks. A direct comparison suggests rather the opposite. However, the compliance cost incurred by EU banks from current banking regulation can be reduced by simplifying EU rules.
Topic:
Markets, Financial Crisis, European Union, Regulation, Capital, and Banking
Political Geography:
Europe

2. Untrustworthy Authorities and Complicit Bankers: Unraveling Monetary Distrust in Argentina

Author:
Guadalupe Moreno
Publication Date:
05-2025
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
Money, capitalist market societies’ paramount contract, relies on the belief in its enduring value. However, we still know surprisingly little about the social foundations that sustain that belief. How is our collective trust in the enduring value of money socially built, and what happens if people lose such trust? What if a society convinces itself that policymakers cannot guarantee that the value of money will persist over time? In this paper, I use Argentina as a monetary laboratory to study how almost eighty uninterrupted years of high inflation and successive currency crises led to a social trauma that crystalized in the emergence of a distrust narrative: a strong popular belief that neither the state nor the local financial system will be able to preserve the value of the national currency or the worth of savings over time. By analyzing the production and reproduction of this narrative and its long-lasting effects on the Argentine economy, I show how rooted distrust in a currency fosters a myriad of practices aimed at protecting savings, which impose severe limits on monetary governance. I emphasize that when state authorities lose control of collective expectations and negative monetary imaginaries take off, a vicious cycle unfolds in which instability, inflation, and devaluation reinforce each other.
Topic:
Civil Society, Financial Crisis, Governance, Central Bank, Money, and Trust
Political Geography:
Argentina and South America

3. Trade Wars and Currency Wars – Lessons from History

Author:
Kris James Mitchener and Kirsten Wandschneider
Publication Date:
04-2025
Content Type:
Policy Brief
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Explaining President Trump’s “Liberation-day” tariffs on April 2nd, 2025, Stephen Miran, President Trump’s chairman of the council of economic advisors suggested that countries accept the U.S. tariffs without retaliation to come to a fair “burden sharing”(Miran: 2025). History shows that this assumption is wrong: using a detailed data set of bilateral trade flows constructed for the interwar period, this column shows that in fact the US faced substantial and widespread retaliation from trade partners in response to the U.S. Tariff Act of 1930 (i.e., the Smoot-Hawley Tariff). U.S. exports to retaliating countries fell by as much as 33%, with U.S. trade partners specifically targeting high-end, branded consumer products, such as U.S. autos. The drop in trade contributed to the Great Depression, which in turn triggered a large currency war: between 1929 and 1936, 70 countries devalued their currencies relative to gold. We show that trade was further reduced by more than 21% following devaluation. The currency war destroyed the trade-enhancing benefits of the global monetary standard, ending regime coordination and increasing trade costs. The 1930s are a potent reminder of what can happen when international policy coordination breaks down and countries go it alone when negotiating trade and exchange-rate policies.
Topic:
Debt, Economics, International Trade and Finance, Financial Crisis, Tariffs, Trade Wars, Trade Policy, and Donald Trump
Political Geography:
North America and United States of America

4. Is Fedwire Still a Subsidy That Fully Recovers Its Cost?

Author:
William Bergman
Publication Date:
07-2025
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper examines the Federal Reserve’s current financial losses—unprecedented in scale—and the questionable accounting practices it uses to downplay their impact. It argues that the Fed’s selfdefined accounting standards, particularly the creation of a “deferred asset” to mask negative equity, obscure the fiscal consequences for the U.S. government and taxpayers. The analysis connects today’s losses to longstanding institutional practices, notably the Fed’s flawed costrecovery accounting for its Fedwire payment system. These issues first emerged in the late 1990s and early 2000s, when the author, then a Fed staffer, challenged the internal logic used to claim that Fedwire guaranteed payments and still avoided subsidies. The paper includes as an appendix the original 2002 draft, “Fedwire: A Subsidy That Fully Recovers Its Cost?”, which helped reveal the moral hazard and accounting inconsistencies that contributed to the 2008 crisis and continue to shape central bank risk and governance today
Topic:
Monetary Policy, Financial Crisis, Federal Reserve, Regulation, Central Bank, and Payment Systems
Political Geography:
North America and United States of America

5. Why can ASEAN Promote Sustainable Development Cooperation?

Author:
Cao Ting and Luo Yongkun
Publication Date:
12-2024
Content Type:
Journal Article
Journal:
Revista Brasileira de Política Internacional (RBPI)
Institution:
Instituto Brasileiro de Relações Internacionais (IBRI)
Abstract:
ASEAN has arguably been one of the most successful regionalisms, which since its inception has undergone several profound challenges, including the 1997 Asian financial crisis. In response to the fierce competition among major powers and the economic and social challenges, ASEAN has concentrated on sustainable development to promote unity and centrality. Sustainable development cooperation aligns with the interests of ASEAN states and helps to promote the construction of the ASEAN community and strike a balance of power on the world stage. Nevertheless, there may be a need for more efforts to resolve the challenges facing sustainable development.
Topic:
International Cooperation, Financial Crisis, Sustainable Development Goals, Regionalism, and ASEAN
Political Geography:
Asia and Southeast Asia

6. The Greek Tragedy: Narratives and Imagined Futures in the Greek Sovereign Debt Crisis

Author:
Jens Beckert and Hans Lukas Richard Arndt
Publication Date:
04-2024
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
Between 2009 and 2015 Greece underwent a profound sovereign debt crisis that led to a serious political crisis in Europe and the restructuring of Greek debt. We argue that the prevalence of negative narratives about the future contributed to the changes in spreads of Greek bonds during the crisis. We support our argument by presenting results from text mining a corpus of 9,435 articles from the Financial Times and the Wall Street Journal. Based on sentiments and a machine learning model predicting future reference, we identify newspaper articles which generate negative and uncertain outlooks for the future in the expert discourse. We provide evidence from time series regression analysis showing that these negative imagined futures have explanatory power in models estimating spread development of Greek vs. German sovereign bonds. We suggest that these findings provide good evidence for the relevance of “imagined futures” for investors’ behavior, and give directions for an innovative contribution of sociology to understanding the microfoundations of financial crises.
Topic:
Debt, Financial Crisis, Financial Markets, Future, Sovereign Debt, Economic Sociology, Sentiment Analysis, and Valuation
Political Geography:
Europe and Greece

7. Xi Demands Fealty Despite Domestic And Foreign Woes

Author:
Willy Wo-Lap Lam
Publication Date:
01-2024
Content Type:
Journal Article
Journal:
China Brief
Institution:
The Jamestown Foundation
Abstract:
The Politburo held a “democratic life meeting (民主生活会)” on December 21–22, 2023, in which President Xi Jinping gave an internal, unpublished speech. According to accounts provided to the author by three officials at the rank of department head or above, Xi admitted that he had repeatedly postponed the Third Plenum of the 20th Central Committee (which according to Party norms should have taken place in October) because he “could not offer any viable solution for the nation’s problems.” Xi, who is general secretary of the Chinese Communist Party (CCP) and commander-in-chief, went on to blame the other 23 Politburo members and other senior cadres, not only for failing to give him good advice but also for demonstrating signs of disobedience. Reports of Xi’s frank admission of the dire straits of the Party’s leadership were widely circulated on social media. The official Xinhua read-out of the Politburo meeting also cited Xi as demanding “unison of thought” among top-tier officials. This entails adhering closely to the instructions of the “core leadership”—in other words, to Xi himself (Xinhua, December 25, 2023). The supreme leader raised the “two safeguards (两个维护),” a slogan that refers to “safeguarding the authority of comrade Xi Jinping as core of the party” and “safeguarding Xi Jinping Thought on socialism with Chinese characteristics for a new era.” President Xi also admonished his close advisors to “take a firm grip on the internal laws of developments [of issues]; accurately distinguish between events and trends, crises and opportunities, and benefits and harms … and effectively combat risks and take action on the basis of stability” (People’s Daily, December 23, 2023). This instruction tallies with caveats given by Xi throughout the past year, in which he has warned that China faces unprecedented challenges and that the party-state apparatus must ready itself to tackle “black swans and gray rhinos.”
Topic:
Financial Crisis, Leadership, Xi Jinping, Chinese Communist Party (CCP), and Banking
Political Geography:
China and Asia

8. Mitigating the Political Cost of Financial Crisis with Blame Avoidance Discourse: The Case of Turkey

Author:
Büşra Söylemez-karakoç
Publication Date:
08-2024
Content Type:
Journal Article
Journal:
Uluslararasi Iliskiler
Institution:
International Relations Council of Turkey (UİK-IRCT)
Abstract:
How do centralized governments mitigate the political cost of severe financial crises? The economic voting scholarship has established that the clarity of responsibility, i.e., government accountability for economic conditions to the mass public, is a necessity for electoral reward or punishment for economic performance. On the one hand, political centralization, which reduces the number of veto players, may increase the visibility of the role of the executive in policy success or failure. On the other hand, it allows an uncontested blame avoidance discourse, especially when accompanied with democratic backsliding. Furthermore, the recent backlash against globalization has enabled blame shifting to international actors in many countries. Against this theoretical framework, we comparatively analyze the responsibility attribution discourses for the 1994, 2001, and 2018-2022 financial crises in the statements of incumbent presidents, ministers, and parliament members of Turkey. We find that while blame avoidance discursive strategies have been attempted in all three cases, the responsibility attribution for the 1994 and 2001 crises mostly targeted the executive. In contrast, for the ongoing crisis, the responsibility discourse is dominated with blaming international political economy factors, creating ambiguity, and targeting domestic non-governmental actors.
Topic:
Economics, Globalization, Politics, Financial Crisis, Voting, and Democratic Backsliding
Political Geography:
Turkey and Middle East

9. The Motives for Chinese and Western Countries’ Sovereign Lending to Africa

Author:
Eckhardt Bode
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper is one of the first to show systematically that the motives for sovereign lending to African countries differed considerably between China and Western countries during the last two decades. While Chinese lending mainly served its own economic or geopolitical objectives, which is well-known from the existing literature, Western countries’ lending also pursued objectives that appear to be at odds with their self-interests but whose precise nature is not yet well-understood. Using a new, da-taset on loans from China, Western countries and multilateral organizations to African countries, I empirically examine a broad variety of potential motives, aim at separating the motives pursued by the national governments from those pursued by their lending agencies, and employ an estimation strategy with increasingly complex fixed effects that yields additional interesting insights into the specificities of the motives.
Topic:
Economics, Emerging Markets, International Trade and Finance, Financial Crisis, Geopolitics, and Sovereign Lending
Political Geography:
Africa, China, and Global West

10. Sovereign Haircuts: 200 Years of Creditor Losses

Author:
Clemens M. Graf von Luckner, Josefin Meyer, Carmen M. Reinhart, and Christoph Trebesch
Publication Date:
06-2024
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
We study sovereign external debt crises over the past 200 years, with a focus on creditor losses, or "haircuts". Our sample covers 327 sovereign debt restructurings with external private creditors over 205 default spells since 1815. Creditor losses vary widely (from none to 100%), but the statistical distribution has remained remarkably stable over two centuries, with an average haircut of around 45 percent. The data also reveal that “serial restructurings”, meaning two or more debt exchanges in the same default spell, are on the rise. To account for this trend toward serial renegotiation, we introduce the “Bulow-Rogoff haircut” – a cumulative measure that captures the combined creditor loss across all restructurings during a single debt crisis. Using this measure, we show that longer debt crises deliver larger haircuts and that interim restructurings provide limited debt relief. We further examine past predictors of the size of haircuts and identify “rules of thumb” applicable to future defaults. Poorer countries, first-time debt issuers, and those that borrowed heavily from external creditors all record significantly higher haircuts in case of a default. Geopolitical shocks – such as wars, revolutions, or the break-up of empires – deliver the deepest haircuts. Sovereign debt investment disasters are often linked to (geo-)political disasters.
Topic:
Monetary Policy, Financial Crisis, Geopolitics, Credit, Sovereign Debt, Emerging Economies, Debt Restructuring, and Sovereign Default
Political Geography:
Global Focus

11. Financial Turmoil, Uncertainty, and Institutions: Turkey’s Political Economy in Crises

Author:
Serhan Yalçiner
Publication Date:
12-2024
Content Type:
Journal Article
Journal:
Uluslararasi Iliskiler
Institution:
International Relations Council of Turkey (UİK-IRCT)
Abstract:
Financial turmoil damages national and global economies, but the causes of financial crises vary, with a combination of financial and political factors creating them. By asserting that every financial crisis necessarily involves political aspects, this study aims to certify that the poor policy response of Turkey, which has relied heavily on a “president over institutions” approach, has contributed to the ongoing severe currency and debt crises. Focusing on the two predominantly domestically induced crises of 2001 and 2018, this article analyzes secondary literature and data to put forth a framework that combines the fiscal policy response with a look at the country’s institutional strength and shows how financial uncertainty and instability exacerbated the conditions of the ongoing 2018 crisis. The study also finds that deteriorating political institutions in Turkey, marked by a lack of governmental efficacy that has led to compromised financial and fiscal sustainability, has played a considerable role in the onset of the 2018 crisis.
Topic:
Political Economy, Financial Crisis, Authoritarianism, Institutions, and Democratic Backsliding
Political Geography:
Turkey and Middle East

12. CPR for the Turkish Economy: The 2001 Financial Crisis and its Aftermath

Author:
W. Robert Pearson
Publication Date:
02-2024
Content Type:
Journal Article
Journal:
American Diplomacy
Institution:
American Diplomacy
Abstract:
On February 19, 2001, at a formal government meeting, the president of Türkiye, Ahmet Necdet Sezer, accused the prime minister, Bulent Ecevit, of incompetent management of the country’s banking system and threw a copy of the Turkish constitutional code book across the table at him. The prime minister stormed out, called a press conference, and verbally attacked the president. Immediately, the stock market panicked, the lira plunged, and interest rates skyrocketed. My wife Maggie and I were celebrating a belated Valentine’s lunch that day. An embassy colleague rushed in to say the Turkish lira was crumbling. I called the prime minister and urged him to buy lira with Turkish reserves as fast as possible. He ignored my advice and by day’s end the lira was in the basement. Overnight, the savings of many ordinary citizens were devastated, and millions of dollars of value had vaporized. The causes of the collapse were many. Türkiye had experienced high inflation throughout the previous decade. The government had run large deficits and funded them with high interest bonds that avoided short-term defaults. The increased borrowing and growing public debt created a dangerous economic risk. The Turkish banking sector faced significant issues, including inadequate regulations, poor risk management, and high levels of non-performing loans. Many banks had debts that were difficult to collect. Türkiye depended greatly on foreign borrowing to finance its economic growth, but, as economic imbalances worsened, changes in investor sentiment added to concerns. Foreign investors withdrew over $70 billion from 2000 to 2001 as the economic situation deteriorated.
Topic:
Diplomacy, Financial Crisis, Economy, and Memoir
Political Geography:
Turkey and Middle East

13. Tunisia’s Economy in the Eye of the Storm

Author:
Ishac Diwan, Hachemi Alaya, and Hamza Meddeb
Publication Date:
10-2024
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
Tunisia’s vulnerability to financial crisis is clear from its economic performance in 2023. How can the country pull itself back from the edge?
Topic:
Financial Crisis, Elections, Economy, and Domestic Politics
Political Geography:
North Africa and Tunisia

14. China as an International Lender of Last Resort

Author:
Sebastian Horn, Bradley C. Parks, Carmen M. Reinhart, and Christoph Trebesch
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper shows that China has launched a new global system for cross-border rescue lending to countries in debt distress. We build the first comprehensive dataset on China’s overseas bailouts between 2000 and 2021 and provide new insights into China’s growing role in the global financial system. A key finding is that the global swap line network put in place by the People’s Bank of China is increasingly used as a financial rescue mechanism, with more than USD 170 billion in liquidity support extended to crisis countries, including repeated rollovers of swaps coming due. The swaps bolster gross reserves and are mostly drawn by distressed countries with low liquidity ratios. In addition, we show that Chinese state-owned banks and enterprises have given out an additional USD 70 billion in rescue loans for balance of payments support. Taken together, China’s overseas bailouts correspond to more than 20 percent of total IMF lending over the past decade and bailout amounts are growing fast. However, China’s rescue loans differ from those of established international lenders of last resort in that they (i) are opaque, (ii) carry relatively high interest rates, and (iii) are almost exclusively targeted to debtors of China's Belt and Road Initiative. These findings have implications for the international financial and monetary architecture, which is becoming more multipolar, less institutionalized, and less transparent.
Topic:
Debt, Emerging Markets, International Trade and Finance, Financial Crisis, Belt and Road Initiative (BRI), and Sovereign Debt
Political Geography:
Africa, China, and Asia

15. Global Value Chain Disruptions and Firm Survival During COVID-19: An Empirical Investigation

Author:
Sasidaran Gopalan and Ketan Reddy
Publication Date:
08-2023
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Despite the rapid acceleration of countries participating in global value chains (GVCs) over the last three decades, global GVC participation rates have plateaued since the global financial crisis (GFC) and worsened with the onset of the coronavirus disease (COVID-19) pandemic. The massive supply chain disruptions induced by the pandemic not only appeared to expose the vulnerabilities of GVCs, largely because of concentration risks, but also contributed to a dramatic decline in trade flows globally. As countries around the world emerge from the shadows of the pandemic, there is growing academic and policy interest in deciphering how countries should build effective strategies that facilitate firm survival, especially viewed from the lens of resilience and robustness. Considering this background, in this paper, we propose to make a twofold contribution to this literature. First, we undertake a comprehensive firm-level investigation (in a cross-country setting) to ascertain whether firms engaged in GVCs relative to non-GVC firms exhibited better survival instincts during the COVID-19 pandemic. Second, we uncover the heterogeneity of the shock across sectors and industries, considering the varied sectoral/industrial exposure to the COVID-19 pandemic. We document that GVC firms showcased greater robustness and resilience during the pandemic phase compared with other firms. Our results also show that the degree of resilience and robustness varies significantly by industry.
Topic:
Financial Crisis, Trade, Global Value Chains, and COVID-19
Political Geography:
Global Focus

16. Cash Cabal: How Hezbollah Profits from Lebanon's Financial Crisis

Author:
Samara Azzi and Hanin Ghaddar
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
The Washington Institute for Near East Policy
Abstract:
In March 2020, Lebanon opted for a “hard default” on $32 billion in sovereign debt, allowing the government to avoid negotiating with its Eurobond holders and investors. Beirut thereafter showed little interest in addressing the consequences of default, and the country’s economic meltdown worsened. As usual, the Lebanese people were the casualties, suffering amid what the World Bank has called a “deliberate depression.” This official negligence has cleared the way for a proliferating cash economy—which in turn has spawned a currency exchange scheme involving the central bank, foreign exchange agents, and Lebanese politicians. Hezbollah specifically has profited in areas ranging from real estate to solar energy, pharmaceuticals, and the illicit Captagon trade. In this Policy Note, authors Samara Azzi and Hanin Ghaddar—a venture capitalist and a former Lebanese journalist—skillfully diagram the corrupt status quo and explain why entrenched actors want to avoid systemic change. But as the study makes clear, the future health of the Lebanese economy requires an overhaul, and the international community must now press for deep reforms and personal accountability.
Topic:
Politics, Non State Actors, Financial Crisis, Economy, Hezbollah, and Shia Islam
Political Geography:
Middle East and Lebanon

17. Afghanistan After 18 Months: Its Humanitarian, Financial, and Governance Crisis

Author:
Wolfgang Danspeckgruber
Publication Date:
11-2023
Content Type:
Policy Brief
Institution:
Liechtenstein Institute on Self-Determination, Princeton University
Abstract:
The Liechtenstein Institute on Self-Determination (LISD) announces the publication of a new series – The Triesenberg Papers – and presents the first installment, entitled: “Afghanistan after 18 Months: Its Humanitarian, Financial, and Governance Crisis.” The paper is available to download here. Key findings of this first Triesenberg Paper demonstrate that the Taliban expects the international community to continue financial and humanitarian assistance as well as to provide food for more than 28 million Afghans, while it apparently keeps enriching itself through taxation (almost $2 billion in 2022), as well as sales of arms, natural resources, and drugs. Afghanistan under Taliban rule is the world’s only country with complete gender apartheid and oppression of girls and women. The paper argues that the Taliban must not be (economically) successful because this can contribute to regional instability and inspire radical (Islamic) forces elsewhere to follow this model in trying to create similar repressive states. It reiterates that Afghanistan has once again become a pawn in the great power game—including Russia, Pakistan, India, China, and others, with tensions between India and China looming large—while Taliban policies and ambitions are being instrumentalized. The paper warns that ignoring the plight of the Afghans in our crisis-prone world increases the existing problems and resulting security risks particularly for Afghanistan’s neighborhood and Europe, by permitting Afghanistan to become a hornet’s nest for international terrorism. The paper proposes concrete steps on how to move forward constructively. The Triesenberg Papers are a new publication series edited by Wolfgang Danspeckgruber and published through the Liechtenstein Institute on Self-Determination at Princeton University. Subjects emanate from the Liechtenstein Colloquia on European and International Affairs (LCM) as well as other specialized meetings on critical topics in contemporary geopolitics, communal relations, security, technology, society, and cultural-religious issues. The LCM have been active since 1989. The meetings and publications seek to produce meaningful, non-polemic, analytical and substantial analysis and to develop innovative and sustainable solutions.
Topic:
Financial Crisis, Governance, Taliban, and Humanitarian Crisis
Political Geography:
Afghanistan and South Asia

18. Recessions, the energy mix and environmental policy

Author:
Pragyan Deb, Davide Furceri, Jonathan Ostry, and Nour Tawk
Publication Date:
10-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
How do severe recessions, such as those brought about by the Global Financial Crisis or the COVID-19 pandemic, affect the composition of energy generation between green and dirty sources? Does creative destruction during recessions result in a sustained greening of the energy mix? The empirical analysis presented in this paper highlights that recessions and crises result in permanent, albeit small, increases in energy efficiency and in the share of renewables in total electricity. These effects are larger, however, when complemented with strong environmental policies – both market-based measures such as taxes on pollutants, trading schemes and feed-in-tariffs, and non-market measures such as emission and fuel standards and R&D investment and subsidies – that incentivise and hasten the transition towards renewable sources of energy.
Topic:
Environment, Financial Crisis, Electricity, Renewable Energy, Energy, and Recession
Political Geography:
Global Focus

19. Can the Lira be saved?

Author:
Fadi Nicholas Nassar and Mike Azar
Publication Date:
03-2023
Content Type:
Video
Institution:
Middle East Institute (MEI)
Abstract:
MEI's US-Lebanon Fellow Fadi Nicholas Nassar speaks to Beirut-based international finance professional Mike Azar on Lebanon's financial crisis. What is the state of Lebanon's banking system, and how did it become so dysfunctional? What does Azar recommend to get Lebanon's economy back on track, and can the Lira be saved?
Topic:
Financial Crisis, Economy, and Banks
Political Geography:
Middle East and Lebanon

20. Decoding Financial Crises: Analyzing Predictors and Evolution

Author:
Young Sik Jeong and Yaein Baek
Publication Date:
08-2023
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
We examine factors that predict financial crises and the evolution of financial crises using non-traditional methodologies, such as machine learning and system dynamics. Firstly, in our random forest model, the top six most important predictors among 12 indicators for the entire period (1870-2017) are the slope of the yield curve, the CPI, consumption, the debt service ratio, equity return, and public debt. Secondly, even though the manifestations of financial crises differ in each case, five common characteristics have been identified by examining various past financial crisis cases using a system dynamics approach (causal loop diagram). The first characteristic is a feedback loop that reinforces credit expansion. Next, the feedback loop leads to the buildup of financial crisis risk. Third, there is the shock that triggers the financial crisis. Fourth, there are risk-spreading factors. Lastly, individual financial crises do not end in themselves but have the common characteristic of becoming the seeds of new crises. In conclusion, two key findings emerge. First, the financial crisis is a systemic problem rather than an individual risk factor. Second, in diagnosing the recent situation, the results point to the risk of the financial crisis spreading.
Topic:
Financial Crisis and Economy
Political Geography:
Global Focus

21. Eight Contradictions of the Imperialist ‘Rules-Based Order’

Author:
Tricontinental: Institute for Social Research
Publication Date:
03-2023
Content Type:
Case Study
Institution:
Tricontinental: Institute for Social Research
Abstract:
We are now entering a qualitatively new phase of world history. Significant global changes have emerged in the years since the Great Financial Crisis of 2008. This can be seen in a new phase of imperialism and changes in the particularities of eight contradictions.
Topic:
Economics, Human Rights, Imperialism, Financial Crisis, Capitalism, Global South, Socialism, and International Order
Political Geography:
China, Asia, Global Focus, and United States of America

22. The Egyptian Financial Crisis: Implications for the region, and for Israel too

Author:
Eran Lerman
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Jerusalem Institute for Strategy and Security (JISS)
Abstract:
Egypt continues to play an active role in regional affairs, including the Aqaba emergency meeting on the Palestinian situation (February 26) and the ongoing effort to prevent escalation in Gaza. At the same time, Cairo is in the middle of a significant financial crisis. The effects of the war in Ukraine – specifically, grain shortages – brought the Egyptian pound to more than 30 to the dollar, up from 20 in November and 15 in early 2022, facilitated by deliberate government action in response to demands by the IMF. Inflation still soars, and so does youth unemployment. All this could destabilize a nation of 105 million on our border, with dire consequences.
Topic:
Financial Crisis, Conflict, Fiscal Policy, and Financial Stability
Political Geography:
Africa, Middle East, Israel, Egypt, and MENA

23. COVID-19 and the Health of Banking Sector in Japan and South Korea: A Comparative Study

Author:
Munim Kumar Barai
Publication Date:
07-2022
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
The economies of Japan and South Korea are dominated by banks. Both countries have created a complex financial structure, including a well-established banking industry at their heart that supports economic operations. However, both countries’ banking sectors have previously faced crises such as the Asian Financial Crisis (mostly in South Korea), the Japanese economic slowdown, and the financial crisis of 2007-08 (both). While the Bank of Japan (BOJ) approved the quantitative easing (QE) monetary policy and lowered interest rates to manage the crises, the Bank of Korea (BOK) pursued interest and financial restructuring as well as banking system digitization to overcome the crises. Covid-19 has disrupted the normal operation of banks, and the central banks and governments of both countries have implemented a variety of monetary and other measures to mitigate its economic and financial consequences. This study aims to identify and assess the health of domestic banks in Japan and South Korea for the Covid-19 ex-ante and interim periods. Several important variables, i.e., portfolios of assets and liabilities, asset productivity, stockholders' equity, profitability, and operating efficiency, have been included to evaluate the health of their banks. This compari-son of health metrics for 2010 to 2020 could help identify changes or shifts in the banking sector of Japan and Korea. The study has used ex-ploratory and descriptive methodologies to undertake qualitative and quantitative evaluations of important bank health indicators in the ex-ante and interim periods of Covid-19. It also used a hybrid method to produce research goals and arguments, including a framework based on what was already known in the field.
Topic:
Financial Crisis, Economy, COVID-19, and Banking
Political Geography:
Japan, Asia, and South Korea

24. The IMF should enhance the role of SDRs to strengthen the international monetary system

Author:
Edwin M. Truman
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The special drawing right (SDR), issued by the International Monetary Fund (IMF), has the potential to strengthen dramatically the international monetary system. Established in 1969 and allocated twice during its first decade, the SDR was in the institutional closet from 1980 until 2009, when $250 billion in SDRs was allocated to members of the IMF to help address the global financial crisis. In 2021 another $650 billion in SDRs was allocated to help address the coronavirus pandemic. The SDR has proved itself as a crisis instrument. This paper addresses critically the arguments against SDR allocations. It proposes regular annual SDR allocations, along with measures to make the SDR more attractive to critics and measures to build out the SDR system in support of the international monetary system. The paper includes an appendix on the history of the SDR. A second appendix analyzes SDR use following the 2009 and 2021 allocations and finds that contrary to the popular myth, many countries other than low-income members of the IMF benefited directly in multiple ways from those allocations.
Topic:
International Trade and Finance, Financial Crisis, Finance, and IMF
Political Geography:
Global Focus

25. Reigniting labour productivity growth in developing countries: Do structural reforms matter?

Author:
Kwamivi Gomado
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
While the negative effects of the 2008 global financial crisis on labour productivity are still fresh in people’s minds, the COVID-19 pandemic raises concerns that productivity will continue to decline. To boost labour productivity and regain economic performance, there is an empirical consensus on the role of structural reforms that allows an efficient reallocation of resources such as labour by reducing rigidities in markets. This study analyses the role of certain structural reforms in improving labour productivity in 35 developing countries over the period of 1990–2014. From the local projection method, our results show that structural reforms have a positive impact on productivity growth in the short and medium terms. The results also illustrate that reforms induce an efficient reallocation of resources within but not between sectors. Taking the business cycle into account in estimates shows that structural reforms stimulate labour productivity growth better in periods of low economic growth.
Topic:
Labor Issues, Financial Crisis, Reform, Business, Economic Growth, and Productivity
Political Geography:
Global Focus

26. The Cyclical Behaviour of Fiscal Policy During the Covid-19 Crisis

Author:
Philipp Heimberger
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper analyses the cyclicality of fiscal policy (discretionary versus automatic) for 28 advanced economies over 1995-2021 by paying special attention to the Covid-19 crisis. We find evidence that discretionary fiscal policy during the Covid-19 crisis (2020-2021) was significantly more countercyclical than before – in particular in the Eurozone. We do not find comparable evidence for more counter-cyclicality during the financial crisis or Euro crisis, which lends support to the argument that discretionary fiscal policy responded especially forceful to stabilise the economy during the Covid-19 crisis. Furthermore, automatic fiscal stabilisers contributed significantly to counter-cyclical stabilisation, although their performance over 2020-2021 was more in line with the past than for discretionary fiscal policy. Overall, fiscal policy in non-Eurozone advanced countries is more countercyclical than in the Eurozone. However, the cyclicality varies markedly across countries. Our findings shed light on how the cyclical behaviour of fiscal policy varies across countries and time.
Topic:
Financial Crisis, Crisis Management, Fiscal Policy, COVID-19, and Euro
Political Geography:
Europe

27. Argentina 20 Years After La Crisis del 2001

Author:
María Félix Herrera and María Félix Herrera
Publication Date:
04-2022
Content Type:
Commentary and Analysis
Institution:
The North American Congress on Latin America (NACLA)
Abstract:
As the government closed a new agreement with the International Monetary Fund, Argentine societyrevisited painful memories from its biggest financial crisis in recent history.
Topic:
Financial Crisis, Economy, and IMF
Political Geography:
Argentina and South America

28. Boom-bust Cycles Revisited: The Role of Credit Supply

Author:
Hyo Sang Kim, Sangyup Choi, and Yuri Kim
Publication Date:
02-2022
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
This study investigates the impacts of credit supply on economic growth and financial crisis. Excess credit supply can make the economy and financial markets more vulnerable. While credit supply can drive economic growth by reallocating resources, it can also make the economy and financial markets more fragile. Asset prices sharply fall when deleveraging occurs in the case of a negative shock to the financial or real sector in a system where credit is excessively supplied. Furthermore, economic activity might be substantially reduced, extending the length and breadth of the recession.
Topic:
Markets, Financial Crisis, Economy, Economic Growth, and Credit
Political Geography:
Global Focus

29. Lebanon in Crisis

Author:
Randa Slim and Edward M. Gabriel
Publication Date:
03-2022
Content Type:
Video
Institution:
Middle East Institute (MEI)
Abstract:
Randa Slim and Amb. Edward Gabriel discuss the daunting trifecta of economic, financial, and political crises Lebanon currently faces and what they anticipate for the country's future.
Topic:
Financial Crisis, Political Crisis, and Economic Crisis
Political Geography:
Middle East and Lebanon

30. The European Banks’ Role in the Financial Crisis of 2007-8: A Critical Assessment

Author:
Photis Lysandrou
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
Since the outbreak of the financial crisis in 2007, opinion has been divided over whether its root cause was credit arbitrage or safe asset demand. New research on the European banks' role in the crisis may finally help to resolve the issue. Far from being peripheral players in the crisis, European banks were deeply implicated in its causal origins as evidenced by their activities in the two US debt markets that were at the heart of the crisis: those for collateralised debt obligations (CDOs) and for asset backed commercial paper (ABCP). These activities would seem to lend weight to the credit arbitrage story, a conclusion that has been reached by several authors. However, it is a conclusion only made possible by ignoring the connection between the federal funds rate and the rate of ABCP demand from the institutional money market mutual funds (MMMFs) in the pre-crisis era. This paper argues that when this connection is closely examined, it turns out that the evidence surrounding the European banks' role in the financial crisis gives greater weight to the safe asset demand explanation of the crisis.
Topic:
Markets, Financial Crisis, Banks, Debt Securities, Assets, and Federal Funds Rate
Political Geography:
Europe and United States of America

31. The Cyclical Behaviour of Fiscal Policy During the Covid-19 Crisis

Author:
Philipp Heimberger
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper analyses the cyclicality of fiscal policy (discretionary versus automatic) for 28 advanced economies over 1995-2021 by paying special attention to the Covid-19 crisis. We find evidence that discretionary fiscal policy during the Covid-19 crisis (2020-2021) was significantly more countercyclical than before – in particular in the Eurozone. We do not find comparable evidence for more counter-cyclicality during the financial crisis or Euro crisis, which lends support to the argument that discretionary fiscal policy responded especially forceful to stabilise the economy during the Covid-19 crisis. Furthermore, automatic fiscal stabilisers contributed significantly to counter-cyclical stabilisation, although their performance over 2020-2021 was more in line with the past than for discretionary fiscal policy. Overall, fiscal policy in non-Eurozone advanced countries is more countercyclical than in the Eurozone. However, the cyclicality varies markedly across countries. Our findings shed light on how the cyclical behaviour of fiscal policy varies across countries and time.
Topic:
Financial Crisis, European Union, Fiscal Policy, and COVID-19
Political Geography:
Europe

32. Evolutionary Possibilities of Democratization and Atavistic Nationalism: A Comparative Study of Unrecognized States

Author:
Hilmi Ulas
Publication Date:
01-2021
Content Type:
Journal Article
Journal:
Journal of Liberty and International Affairs
Institution:
Institute for Research and European Studies (IRES)
Abstract:
The question of how rising atavistic nationalism will affect democracies worldwide is an essential one of our time. In this paper, I focus instead on conducting a comparative historical analysis of atavistic nationalism in two unrecognized states: North Cyprus and Taiwan. I argue that the democratic crisis of our times is, in its essence, economic and has been precipitated by the failure of democracies to build domestic capacities to support democratic values. Furthermore, I posit that engaging populaces at the local political level will prove essential to preserving democracies around the world. I conclude by underlining that atavistic nationalism is indeed a significant threat to regional and global peace and requires further co-operation on trade and governance, and should be engaged at the local level. Lastly, I suggest that co-creating local cultures that will act to soften atavistic nationalism, which feeds off the perception of threats and fear.
Topic:
Democratization, Nationalism, Financial Crisis, and Economy
Political Geography:
Taiwan and Cyprus

33. China’s FDI in Europe and Europe’s Policy Response

Author:
Pyoung Seob Yang, Cheol-Won Lee, Suyeob Na, Taehyn Oh, Young Sun Kim, Hyung Jun Yoon, and Yoo-Duk Ga
Publication Date:
04-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
China’s investment in the European Union (EU) increased significantly during the European financial crisis, but has been on the decline in recent years. The surge of Chinese investment has raised concerns and demands for analysis on the negative effects it could have on the EU companies and industries. In this context, the present study aims to analyze the main characteristics of Chinese investment and M&A in Europe, major policy issues between the two sides, the EU’s policy responses, and prospects of Chinese future investment in Eu-rope, going on to draw important lessons for Korea. To summarize the main characteristics of China's investment in Europe, the study found that the EU's share of China's overseas direct investment has continued to increase until recently. Second, investment in the Central and Eastern European Countries (CEECs) is gradually increasing, although it is still insignificant compared to the top five destinations in the EU: Netherlands, Sweden, Germany, Luxembourg and France. Third, China's investment in the EU is being made in pursuit of innovation in manufacturing and to acquire high-tech technologies. When it comes to China's M&A in Europe, the study found that the proportion of indirect China's M&As (via third countries (e.g. Hong Kong) or Chinese subsidiaries already established in Europe) was relatively higher than direct ones. Empirical factor analysis of investment also shows that China's investment in the EU is strongly motivated by the pursuit of strategic assets. Other factors such as institutional-level and regulatory variables are found to have no significant impact, or have an effect contrary to expectations. This suggests that China's investment in the EU is based on the Chinese government's growth strategy, and accompanies an element of national capitalism Today, It is highly expected that the COVID-19 pandemic will have a reorganizing effect on the global value chain (GVC) and Foreign investment regulation in the high-tech sector motivated by national security is emerging as a global issue as the US and the EU are tightening their control. As Korean companies are not free from the risk of falling under such regulations, a thorough and careful response is required. And for the Korean government, it is necessary to prepare legal and institutional measures regulating foreign investment in reference to the US and the EU.
Topic:
Foreign Direct Investment, Financial Crisis, European Union, Economy, Economic Growth, Global Value Chains, and COVID-19
Political Geography:
China, Europe, Asia, Korea, and United States of America

34. Fiscal resiliency in a deeply uncertain world: The role of semiautonomous discretion

Author:
Peter R. Orszag, Robert E. Rubin, and Joseph E. Stiglitz
Publication Date:
01-2021
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Orszag, Rubin, and Stiglitz outline a new fiscal framework that they argue would better equip policymakers to face deep uncertainties about future interest rates (which, they say, may not remain low forever), hard-to-predict global shocks, and climate risks. They reject fiscal anchors—simple limits on deficits or debt as a share of GDP that governments adopt to check their spending and borrowing—that have historically guided fiscal policy and believe any attempts to modify such targets for the current period of low interest rates are likely to fail. Instead they propose making the budget respond more automatically to economic distress (through stronger automatic stabilizers) and to long-term fiscal pressures (e.g., embedding adjustment mechanisms in health care and pension programs), as well as creating an infrastructure program and extending debt maturities to insure against interest rate changes. Such a "streamlined dashboard" would then allow policymakers to use discretion as necessary to take any additional actions—either to provide more stimulus during short-term difficulties or to adjust the automatic features themselves—rather than adhering to fiscal targets that may no longer be appropriate when economic conditions change.
Topic:
Financial Crisis, Economy, Fiscal Policy, and Fiscal Deficit
Political Geography:
Global Focus

35. Startups in the United States during the pandemic reflect some dynamism amid job losses

Author:
Simeon Djankov and Eva (Yiwen) Zhang
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
New business applications have surged in the United States since the start of the COVID-19 pandemic. The growth is driven largely by startups in online retail, transportation, and personal services. Many of these new entrepreneurs are self-employed and were likely laid off and forced into entrepreneurship by necessity. No official data are available yet on the number of businesses destroyed in 2020, because business data for firms that close without entering bankruptcy are lagging. But the authors calculate that firm births may have surpassed firm deaths during the pandemic. While this boom in business entry is a tribute to the adaptability and potential innovative spirit in US capitalism, one should not be overly optimistic about jobs created in this wave of startups. As many of these new startups are by people forced to strike out on their own, the number of jobs created per new firm is even smaller than it was during previous US recessions. And like online businesses started around the last recession (e.g., Uber, Airbnb, and Venmo), some of these new firms may turn out to be major contenders in their sectors, displacing workers employed by their traditional rivals.
Topic:
Science and Technology, Labor Issues, Financial Crisis, and COVID-19
Political Geography:
North America and United States of America

36. The Long Search for Stability: Financial Cooperation to Address Global Risks in the East Asian Region

Author:
C. P. Chandrasekhar
Publication Date:
03-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Forced by the 1997 Southeast Asian crisis to recognize the external vulnerabilities that openness to volatile capital flows result in and upset over the post-crisis policy responses imposed by the IMF, countries in the sub-region saw the need for a regional financial safety net that can pre-empt or mitigate future crises. At the outset, the aim of the initiative, then led by Japan, was to create a facility or design a mechanism that was independent of the United States and the IMF, since the former was less concerned with vulnerabilities in Asia than it was in Latin America and that the latter’s recommendations proved damaging for countries in the region. But US opposition and inherited geopolitical tensions in the region blocked Japan’s initial proposal to establish an Asian Monetary Fund, a kind of regional IMF. As an alternative, the ASEAN+3 grouping (ASEAN members plus China, Japan and South Korea) opted for more flexible arrangements, at the core of which was a network of multilateral and bilateral central bank swap agreements. While central bank swap agreements have played a role in crisis management, the effort to make them the central instruments of a cooperatively established regional safety net, the Chiang Mai Initiative, failed. During the crises of 2008 and 2020 countries covered by the Initiative chose not to rely on the facility, preferring to turn to multilateral institutions such as the ADB, World Bank and IMF or enter into bilateral agreements within and outside the region for assistance. The fundamental problem was that because of an effort to appease the US and the IMF and the use of the IMF as a foil against the dominance of a regional power like Japan, the regional arrangement was not a real alternative to traditional sources of balance of payments support. In particular, access to significant financial assistance under the arrangement required a country to be supported first by an IMF program and be subject to the IMF’s conditions and surveillance. The failure of the multilateral effort meant that a specifically Asian safety net independent of the US and the IMF had to be one constructed by a regional power involving support for a network of bilateral agreements. Japan was the first regional power to seek to build such a network through it post-1997 Miyazawa Initiative. But its own complex relationship with the US meant that its intervention could not be sustained, more so because of the crisis that engulfed Japan in 1990. But the prospect of regional independence in crisis resolution has revived with the rise of China as a regional and global power. This time both economics and China’s independence from the US seem to improve prospects of successful regional cooperation to address financial vulnerability. A history of tensions between China and its neighbours and the fear of Chinese dominance may yet lead to one more failure. But, as of now, the Belt and Road Initiative, China’s support for a large number of bilateral swap arrangements and its participation in the Regional Comprehensive Economic Partnership seem to suggest that Asian countries may finally come into their own.
Topic:
Regional Cooperation, Bilateral Relations, Financial Crisis, Central Bank, IMF, Liberalization, Financial Globalization, and Financial Integration
Political Geography:
China, Asia, and United States of America

37. Central Banks Caught Between Market Liquidity and Fiscal Disciplining: A Money View Perspective on Collateral Policy

Author:
Jakob Vestergaard and Daniela Gabor
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Despite much attention to unconventional monetary policies after the financial crisis, the collateral policies of central banks are rarely discussed. And when they are, the haircuts applied to assets pledged to access central bank liquidity tend not to be analyzed. An exception to these trends is the recent work by Nyborg (2017), who argues that the collateral policies adopted by the European Central Bank (ECB) aggravated the sovereign debt crisis and put the survival of the euro at risk. Taking our point of departure in the money view literature (Mehrling 2011), we argue however that Nyborg’s critique of the ECB’s crisis response is misguided and that his proposal to deepen and reinforce the ECBs role in the fiscal disciplining of member states would be procyclical and destabilizing. Through our analysis of Nyborg’s work and the ECBs crisis response, we identify core principles for countercyclical collateral policies suitable for market-based financial systems.
Topic:
Monetary Policy, Financial Crisis, Finance, and Banking
Political Geography:
Global Focus

38. Regional Financial Cooperation in East Asia from a New Perspective

Author:
Sungbae An and Subin Kim
Publication Date:
12-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Following the Asian financial crisis of 1998, there was a need to improve regional financial cooperation, including liquidity support. The Chiang Mai Initiative Multilateralization (hereinafter, CMIM) and the Asian Bond Market Initiative (hereafter, ABMI) are two of the outcomes, but it is difficult to find countries that are actively using these mechanisms. Against this backdrop, we will first examine the limitations of existing systems and propose ways to overcome those limitations, as well as new ways to strengthen East Asian financial cooperation. We suggest three ways to strengthen financial coopera-tion in East Asia from a new perspective: 1) monetary cooperation through Central Bank Digital Currency (CBDC) 2) establishment of development financial institution in Northeast Asia 3) financial cooperation with Central Asia and Mongolia. Of course, more precise planning is required to implement these alternatives, and it is also recognized that the topics covered in this study represent only a subset of regional financial and monetary cooperation. However, by overcoming the limitations thus far, it is hoped that it can be a contribution that provides at least a glimmer of thought, which can hopefully become more concrete in future studies.
Topic:
Development, Regional Cooperation, Monetary Policy, Financial Crisis, and Finance
Political Geography:
Central Asia and East Asia

39. Low inflation bends the Phillips curve around the world: Extended results

Author:
Jami Forbes, Joseph E. Gagnon, and Christopher G. Collins
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
This paper revises and extends PIIE Working Paper 20-6. It continues to find strong support for a Phillips curve that becomes nonlinear when inflation is "low"—which our baseline model defines as less than 3 percent. The nonlinear curve is steep when output is above potential (slack is negative) but flat when output is below potential (slack is positive) so that further increases in economic slack have little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. When inflation is high, the Phillips curve is linear and relatively steep. These results are robust to placing the threshold between the high and low inflation regimes at 2, 3, or 4 percent inflation or for a threshold based on country-specific medians of inflation. In this nonlinear model, international factors play a large role in explaining headline inflation (albeit less so for core inflation), a role that has been increasing since the global financial crisis.
Topic:
Economics, Financial Crisis, Inflation, and Philips Curve
Political Geography:
Global Focus

40. Economic Diplomacy: The impact of Russia’s growing role on the Lebanese crisis

Author:
Nawar Samad
Publication Date:
07-2021
Content Type:
Commentary and Analysis
Institution:
Future for Advanced Research and Studies (FARAS)
Abstract:
A Russian business delegation visited Lebanon in late June 2021 to offer support to the country by cultivating projects in the oil sector, development plans for the energy industry as well as the ports in Beirut and Tripoli. For the past two years, Lebanon, which is going through the worst economic and financial crisis in its history, and has been trying to secure international aid to survive, is now facing the attractive Russian economic bailout offer. Although such an offer is welcomed by Lebanon, the Russian initiative raises concerns across the West, and particularly in the United States, which is in control of Lebanon’s banking system and still has significant influence on the state’s politics and financial sector. The United States believes that it is not possible to dissociate this Russian offer from Moscow’s desire to expand its influence in a region, in which it already established military presence and gained access to the Eastern Mediterranean, where a conflict is underway over investment of newly-discovered gas fields.
Topic:
Diplomacy, Economics, Financial Crisis, and Gas
Political Geography:
Russia, Eurasia, Middle East, and Lebanon

41. Ups and Downs in Finance, Ups without Downs in Inequality

Author:
Olivier Godechot, Nils Neumann, Paula Apascaritei, István Boza, and Martin Hällsten
Publication Date:
11-2021
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
The upswing in finance over the past several decades has led to rising inequality, but do downswings in finance lead to a symmetric decline in inequality? In this paper, we analyze the asymmetry of the effect of ups and downs in financial markets, as well as the effect of increased capital requirements and the bonus cap on national earnings inequality. We use administrative employer–employee linked data on earnings from 1990 to 2017 for twelve countries. Additionally, we use data on earnings from bank reports, from 2009 to 2017 in thirteen European countries. We find a strong asymmetry in the effects of financial ups and downs on earnings inequality, a mitigating effect of rising capital requirements on the contribution of finance to inequality, and a restructuring effect of the bonus cap for the earnings of financiers, while neither policy affects absolute levels of earnings inequality.
Topic:
Financial Crisis, Regulation, Inequality, and Finance
Political Geography:
Europe

42. How Govenrment Outflow and Public Debt Affect Inflation: Evidence from See Countries

Author:
Ereza A. Arifi
Publication Date:
09-2021
Content Type:
Journal Article
Journal:
Journal of Liberty and International Affairs
Abstract:
The study aims to address public debt and government outflow affecting inflation in some of the countries of Southeast Europe, observing a combination of factors both theoretically and econometrically. The investigation included six (6) SEE countries, including the 2006-2020 timeframe, with 90 observations. The dynamic approach, the fixed effect, and the Arellano/Bond estimator were used to check the parameters considered in the study using panel data. Furthermore, the study also applied diagnostic tests such as the Sargan over-identifying restrictions and Pedroni test for cointegration. The results of the fixed effect and Arellano / Bond estimation demonstrate that public debt, current budget outflows, and capital budget outflows affect inflation, while overall budget outflows are insignificant. For further studies, it would be useful to apply other dynamic models by applying other specific factors, which will be considered as a useful contribution to the academic, research, and policy-making structures.
Topic:
Financial Crisis, Governance, Finance, Inflation, and Public Debt
Political Geography:
Global Focus

43. The Soft Touch of International Financial Regulation: Status, Flaws and Future

Author:
Niall O'Shaughnessy
Publication Date:
06-2021
Content Type:
Journal Article
Journal:
The Goettingen Journal of International Law
Institution:
The Goettingen Journal of International Law
Abstract:
The 2008 global financial crisis focused attention on the relationship between the behaviour of international financial institutions and the rules they follow. Many banks in the US and Europe failed, in part, due to their inability to absorb the fallout of the US mortgage market collapse. If international financial institutions could not protect themselves from the cycles of the market, how come regulators were unable to do so either? The most relevant instrument of international financial regulation for understanding the 2008 crisis is the Basel Accords, the rules that specify how much capital a bank should always hold in reserve. However, these rules are ‘soft law’ and so, non-binding. It is a myth of course that soft law is the only way to regulate international finance, as many scholars argue. Despite numerous rounds of reform, the Basel Accords have always been inadequate. The purpose of this paper is to account for the flaws of the Basel Accords and the role that soft law plays in creating those flaws. This paper also analyses the competing theories behind the rise of soft law within financial regulation and the ‘political economy’ explanation is endorsed. The final section of the paper discusses the future of financial regulation and soft law, as well as highlighting innovations from outside the hard/soft law dichotomy and outside the Global North. This paper concludes by stating that the theory behind soft law does not play out in practice within finance and that it remains in place because it suits the interests of large institutions and powerful states. At the same time, a return to Bretton Woods or a new World Financial Organization is problematic and, as such, we must look beyond the hard/soft law debate and embrace the work of the Global South and East.
Topic:
Markets, Financial Crisis, Regulation, Capital, and Banking
Political Geography:
Global Focus

44. Lebanon’s Pandemic in Context

Author:
Ziad Abu-Rish
Publication Date:
06-2021
Content Type:
Special Report
Institution:
Center for Contemporary Arab Studies (CCAS)
Abstract:
ADF Fellow Ziad Abu-Rish takes a deeper look at COVID-19’s spread in Lebanon and how it intersects with the country’s ongoing crises.
Topic:
Poverty, Financial Crisis, Crisis Management, Unemployment, Public Health, Pandemic, and COVID-19
Political Geography:
Middle East and Lebanon

45. Fiscal Policy as Credit Policy: Reassessing the Fiscal Spending vs. Private Debt Trade-Off

Author:
Etienne Lepers
Publication Date:
01-2021
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
This paper revisits the dominant narrative that explains the substantial household credit boom as a substitute to fiscal redistribution, i.e. the “substitution” hypothesis, according to which fiscally-constrained governments substituted public safety nets by private credit. I argue instead that the credit and welfare state constituencies may not necessarily be the same and that far from fiscally constrained, governments have been actively using “fiscal policy as credit policy”. I provide two sets of empirical evidence for such account: First, I find a positive within-country relationship between household debt and fiscal spending. Second, compiling a unique dataset of 550 fiscal subsidies adjustments in 50 countries since 1980, I show that fiscal and tax subsidies have been instrumental in driving household credit. These dynamics have distributional and financial stability implications as such tax subsidies typically favour higher income households and household debt booms have proven more dangerous than corporate ones.
Topic:
Debt, Financial Crisis, Welfare, Financialisation, Subsidies, Household, and Public Finance
Political Geography:
Global Focus

46. Individual Accountability in International Economic Policymaking after the Global Financial Crisis

Author:
Stefano Pagliari and Iosif Kovras
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
In the aftermath of the global financial crisis, the design of accountability mechanisms has taken on renewed importance in academic and policy debates. Calls for holding individuals whose actions and omissions contributed to the meltdown accountable have gained traction in a number of countries after the crisis. Yet, individual accountability norms are seemingly absent from the international economic agenda in response to crisis. In this paper we address this puzzle by exploring the evolution of two major international organisations, the IMF and the FSB, in bringing accountability following financial crises. Our analysis reveals how these institutions have increasingly incorporated in their toolkit policy recommendations related to the unethical or illegal conduct by government officials of individuals in the financial industry, but these tools were geared almost exclusively towards forward-looking policies designed to deter the reoccurrence of illegal or unethical behavior rather than punishing or scrutinizing past wrongdoing. We argue that the extent to which individual accountability norms permeate the international economic agenda is mediated by the institutional characteristics of the organizations that comprise the international financial regime.
Topic:
Financial Crisis, Governance, Culture, Accountability, and Bureaucracy
Political Geography:
Global Focus

47. Causal Mechanism and Explanation in Social Science

Author:
Renate Mayntz
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
In the social sciences, the development of a specific social event or structure is often explained by a statistical correlation between an independent variable and a variable assumed to be dependent upon it. This mode of explanation is contested by a methodology of causal reconstruction that operates with the concept of mechanisms. A mechanism is a process in which a set of linked steps leads from initial conditions to an outcome or effect. Mechanisms are general concepts, subjecting individual cases to a general category. Except for the literature dealing specifically with the concept, the term “mechanism” is often used without definition of its substantive content; there is no agreement with respect to the unique or plural character of the initial conditions, nor to the structure of the causal path leading to a specific outcome. Nevertheless, mechanisms have played a crucial role in detailed causal analysis of complex historical events, such as the financial crisis of 2008 and German unification of 1989.
Topic:
Financial Crisis, Reconstruction, Unification, Social Science, and Mechanism
Political Geography:
Europe, Germany, and United States of America

48. Beyond Coronabonds: A New Constituent for Europe

Author:
Nicoletta Pirozzi
Publication Date:
04-2020
Content Type:
Commentary and Analysis
Institution:
Istituto Affari Internazionali
Abstract:
Every era has its symbols. In 1984, Mitterrand and Kohl held hands on the battlefield in Verdun, coming to symbolise the importance of peace in the pursuit of European integration. Today, in times of COVID-19, the so-called “Coronabonds” could have emerged as the symbol of a new Europe, one that is ready and able to do what it takes to collectively overcome the present crisis. Yet, what some member states consider an indispensable emblem of European solidarity, namely debt mutualisation to face an unprecedented symmetric crisis brought about by COVID-19, is regarded by others as an ultimate excuse for moral hazard. As a result, Europe could end up with a politically more digestible European Fund, as proposed by Commissioners Paolo Gentiloni and Thierry Breton, designed to issue long-term bonds.[1] Or, as outlined by the Eurogroup, a Recovery Fund that is “temporary, targeted and commensurate” to the extraordinary costs of the current crisis, helping to spread them across time.
Topic:
Financial Crisis, Governance, Finance, Economy, and Coronavirus
Political Geography:
Europe and European Union

49. Assessing Israel Katz’s First Year as Foreign Minister

Author:
Nimrod Goren
Publication Date:
02-2020
Content Type:
Commentary and Analysis
Institution:
Mitvim: The Israeli Institute for Regional Foreign Policies
Abstract:
In February 2019, Israel Katz was named Israel’s interim foreign minister, and three months later his appointment became permanent. This ended a period of almost four-years without a fulltime foreign minister, during which the Ministry of Foreign Affairs (MFA) significantly declined. A year into Katz’s term, an assessment can be made as to whether his appointment has strengthened the MFA and left a policy imprint. This, while taking into consideration the turmoil in Israeli politics since early 2019 and the understanding that deeper change requires a ministerial tenure longer than a year. This article sums up Katz’s first year on the job, based on media reports and information published by the MFA. It examines both intra-ministerial and policy aspects, and concludes that Katz is operating in Netanyahu’s heavy shadow, has failed to address the deep budgetary crisis faced by the MFA, and has focused on developing ties with Gulf States and combatting anti-Semitism.
Topic:
Government, Politics, Financial Crisis, and Benjamin Netanyahu
Political Geography:
Middle East, Israel, and Gulf Nations

50. Bank recapitalizations in Greece: From state-led bailouts to the ownership transfer of banks to foreign hands

Author:
Athanasios Kolliopoulos
Publication Date:
05-2020
Content Type:
Working Paper
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
A decade after the conclusion of the first economic adjustment programme in 2010 and despite three consecutive recapitalizations, Greek banks still suffer from the highest Non-Performing Loans ratio in the Eurozone, with credit expansion in the “real economy” remaining anemic. Furthermore, the overall impact on public debt from government financial support to Greek banks over the last decade was one of the largest among the Eurozone countries. What went wrong? What were the reasons that the domestic financial system ended up in this exceptionally sad state? Why did the recapitalization policy not have the desired outcome? Exploring these questions throughout the literature of responses to banking crises, this paper shows that recapitalization policy in Greece failed to exploit the advantages of the principal forms of bank rescues. In fact, the significant inertia prevailing among authorities and bankers throughout the recapitalizations brought about the ownership transfer of the Greek banking system to foreign hands (“dehellenization”) after the third recapitalization in late 2015. You may acces the full paper by Dr. Athanasios Kolliopoulos, Postdoctoral Researcher at the Athens University of Economics and Business, here.
Topic:
Financial Crisis, Banks, Recapitalizations, Bailout, and Banking Crisis
Political Geography:
Europe and Greece