How the euro changed the pattern of international debt flows

Galina Hale, Maurice Obstfeld 15 May 2014

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Internal financial imbalances within the Eurozone were central to the development of the European debt crisis. They resulted in a concentration of European periphery risks on the balance sheets of banks located in core Eurozone countries (Lane 2012, Rey 2012, Shin 2012). They also promoted larger intra-Eurozone current-account deficits and a sharp fall in peripheral bond yields, accompanied by a loss of competitiveness of the peripheral economies, most strikingly relative to Germany (Chen et al. 2013, Shambaugh 2012).

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Topics:  EU institutions Financial markets

Tags:  eurozone, Debt crisis

To end the Eurozone crisis, bury the debt forever

Pierre Pâris, Charles Wyplosz 06 August 2013

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The Eurozone’s debt crisis is getting worse despite appearances to the contrary.

Eurozone bond rate spreads have narrowed – leading some to think that the crisis is fading.1 Yet the narrowing is not due to an improvement in fundamentals. It happened after the ECB announced its Outright Monetary Transactions (OMT) programme. Mario Draghi’s, “Whatever it takes”, did the trick; investors believe the ECB could and would counter rising spreads in the medium term.2 

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Topics:  EU institutions Macroeconomic policy

Tags:  Debt crisis, Eurozone crisis, debt monetisation

Disaster economics and bond yields

Ziad Daoud, Martin Brookes 16 August 2012

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Two-year bond yields in six European countries recently turned negative. The decline in bond yields has prompted a growing number of commentators to say that bonds are overvalued.

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Topics:  International finance

Tags:  bond markets, Debt crisis, Eurozone crisis

The Italian situation: Clarification and a prediction

Alberto Alesina, Francesco Giavazzi 13 September 2011

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Under pressure from the bond market and the European Central Bank, Italy has adopted a budget that implies a sharp shift in fiscal stance.

  • The primary surplus is projected to move from 0% in 2011 to close to 6% in 2014, with half of the adjustment happening next year.
  • The size of the shift meets the conditions the ECB had set on 11 August 2011 in order to continue buying Italian government bonds.

The composition is, however, quite different from what the ECB suggested.

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Topics:  Europe's nations and regions Macroeconomic policy Politics and economics

Tags:  Italy, Debt crisis, Eurozone crisis, austerity

Italy's confidence crisis: Bad policies from bad politicians

Tito Boeri 17 August 2011

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Three fiscal consolidation packages in six weekseach more ambitious than the lasthave failed to prevent a credibility crisis that has doubled the Italy’s risk premium. The problem was that none of the packages addressed the fundamental shortcomings of the first onethe one that started the credibility crisis. We saw partial remedies for relatively minor deficiencies. Such failings bring to mind the old axiom: Errare humanum est, perseverare autem diabolicum (to err is human but to persevere is diabolical).

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Topics:  Europe's nations and regions

Tags:  Italy, Debt crisis, Eurozone crisis

Eurozone debt crisis: Reckless debtors or misguided rescuers?

Stefano Micossi 29 May 2011

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Our disgraceful leaders did it again. They managed to deeply unsettle financial markets by once again sparking off doubts on the orderly rollover of distressed sovereigns (Reguly 2011). This has pushed interest spreads over German Bunds to unprecedented heights – over 2300 basis points for Greek sovereigns – and raised fears that contagion might spread not only to Spain and Italy, but reaching the Eurozone core, starting with Belgium (Micossi 2010). The public discussion stands out for its especially damaging effects.

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Topics:  EU policies Europe's nations and regions

Tags:  Debt crisis, Fiscal crisis, Eurozone crisis

The European debt crisis: Worrisome delusions

Charles Wyplosz 19 December 2010

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Lorenzo Bini-Smaghi – Member of the ECB's Executive Board – has produced a brilliant defence of the no-default strategy currently pursued by the Eurozone authorities (Financial Times 2010).

His arguments are straightforward.

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Topics:  EU institutions

Tags:  ECB, eurozone, Debt crisis

Sovereign defaults, banks and financial institutions

Nicola Gennaioli, Alberto Martin, Stefano Rossi 17 November 2010

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Recent sovereign defaults highlight a close link between government default and financial sector turmoil, where banks often take centre stage. In the Russian default of 1998 the government's suspension of debt payments triggered large losses on the balance sheets of Russian banks, which had heavily invested in public bonds. These events, further exacerbated by the devaluation of the rouble, allegedly contributed to cause a financial sector meltdown and a credit crunch. Although particularly severe, the Russian episode is by no means exceptional.

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Topics:  Global crisis International finance

Tags:  financial development, default, Debt crisis, Fiscal crisis

Debt and growth revisited

Carmen M Reinhart, Kenneth Rogoff 11 August 2010

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Economics has been under fire since the recent crisis for enshrining abstract models that offer little connection to the real world. In “Growth in a Time of Debt,” our data-intensive approach aims at providing stylised facts, well beyond selective anecdotal evidence, on the contemporaneous link between debt, growth, and inflation at a time in which the world wealthiest economies are confronting a peacetime surge in public debt not seen since the Great Depression of 1930s and indeed virtually never in peacetime.

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Topics:  Global crisis Global governance International finance

Tags:  global crisis, Debt crisis, Fiscal crisis, Eurozone crisis

It takes less than a sovereign default to cause instability

Fabio Panetta, Giuseppe Grande 07 August 2010

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According to many commentators a sovereign default could be the next stage of the crisis (Reinhart 2010, Rogoff 2010 and Reinhart and Rogoff 2010). Indeed, the Greek crisis has highlighted the potential contagion effects of a sovereign default. Actually, it would take much less than a large-scale debt crisis to generate instability.

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Topics:  Global crisis Global economy

Tags:  Debt crisis, Fiscal crisis, sovereign default, Eurozone crisis

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