Cyprus: The next blunder

Charles Wyplosz 18 March 2013

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The decision to tax all Cypriot bank deposits has attracted massive attention (Spiegel 2013) – and rightly so. It is a huge blunder:

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Topics:  EU institutions Macroeconomic policy

Tags:  EU, Eurozone crisis, Cyprus

Avoiding an Italian bailout: Why and how

Francesco Giavazzi 13 August 2012

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Spain has no options, but Italy does.

  • Spain will have to accept EFSF conditionality in order to persuade the ECB to buy its bonds.
  • Italy is different; Italy should not bow to the EFSF and submit itself to its conditionality in order to persuade the ECB to buy its bonds.

Spain may have no other option than to turn to the EFSF and the ECB for assistance: Italy has, and should pursue them. By going to the EFSF together with Spain – as many in the markets are advising – the two countries would be put in the same basket, one in which Italy does not belong.

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Topics:  EU policies

Tags:  Eurozone crisis, EFSF, Italian bailout, Spanish bailout

Why is euro inflation so low?

Jean-Pierre Landau 02 December 2014

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Inflation in the Eurozone stood at 0.4% (year on year) in November. It has been persistently declining for almost a year, and constantly undershooting forecasts. The Eurozone is now clearly diverging from many advanced economies, where inflation is either on the rise – albeit at moderate levels – as in the US, or, when falling, still remaining close to target, as the UK.

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Topics:  Macroeconomic policy Monetary policy

Tags:  inflation, eurozone, safe assets, safety trap, risk aversion, disinflation, exchange rates, interest rates, liquidity trap, zero lower bound, monetary policy, public debt, Eurozone crisis, Central Banks, ECB, quantitative easing, long-term refinancing operations, unconventional monetary policy, liquidity, asset-backed securities, securitisation, debt sustainability, fiscal space, fiscal capacity, balance sheets

Linking banking crises and sovereign defaults in emerging markets

Irina Balteanu, Aitor Erce 12 November 2014

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The feedback loop between fiscal and financial instability has been at the core of the recent turmoil in Europe (Acharya et al. 2014). In some countries, systemic banking crises triggered fiscal distress due to the magnitude of bank rescue operations (for example, in Ireland). In others, substantial sovereign debt tensions, leading to successive sovereign downgrades, severely weakened domestic financial systems (for example, in Greece).

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Topics:  Financial markets International finance Macroeconomic policy

Tags:  twin crises, debt, sovereign debt, sovereign default, banking crises, financial crisis, doom loop, Eurozone crisis, emerging markets

EU bank deleveraging

Pierluigi Bologna, Arianna Miglietta, Marianna Caccavaio 14 October 2014

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Ever since the global financial crisis made it apparent that financial institutions had increased their leverage substantially (Figure 1), bank leverage has faced intense scrutiny. In the run-up to the crisis, the ballooning of banks’ balance sheets was primarily driven by both a significant increase in lending activities and an abundance of cheap funding. Many banks expanded dramatically, becoming too highly leveraged and ‘too-big-to-fail’, while at the same time accumulating substantial risks.

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Topics:  EU policies Financial markets Global crisis

Tags:  deleveraging, leverage ratios, bank-sovereign link, EU banks, banking, credit, Eurozone crisis

No miracles in southern Eurozone without resource reallocation

Ramon Xifré 12 September 2014

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The most acute phase of the Global Crisis appears to be over in the Eurozone. Prospects for growth are still moderate but no recession is foreseen in the short-run and sovereign debt markets seem to be getting out of the turbulences. The prevailing view is that the countries that have been under the Economic Adjustment Programmes (EAP) have drastically improved their conditions with the recovery extending to large, non-EAP but ‘vulnerable’ member states like Spain, Italy, and France.

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Topics:  Europe's nations and regions Global crisis Productivity and Innovation

Tags:  Eurozone crisis, firm size, current account rebalancing, structural reforms, industrial policy

Smaller is better: Disintegrated nations in an integrated Europe

Edoardo Campanella 12 August 2014

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Throughout the course of history, there are few regions in the world whose map has changed as frequently and abruptly as that of Europe. Nowadays, political forces – less violent and bloody than in the past, but equally destructive – are slowly and imperceptibly eroding the borders of several countries. Tensions within states – not enmities among competing powers – are remodelling the political geography of Europe.

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Topics:  Europe's nations and regions Global governance Politics and economics

Tags:  EU, regionalism, independence, Eurozone crisis, Catalonia, Scotland, separatism, secessionism, Flanders

Sovereign debt markets in turbulent times: A view of the European crisis

Fernando A Broner, Aitor Erce, Alberto Martin, Jaume Ventura 23 July 2014

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Between the start of the financial crisis in 2007 and late 2009, the Eurozone’s periphery countries saw a substantial reduction in economic growth and an increase in deficits. But their economic performance was, if anything, stronger than that in the core countries. The recessions in the periphery were no deeper than in the core, and financial markets absorbed their increasing public debt as they had done in the past, with non-resident creditors absorbing large portions of the increase.

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Topics:  Europe's nations and regions Global crisis Monetary policy

Tags:  public debt, Eurozone crisis, Eurozone sovereign debt, creditor discrimination

The euro crisis: Muddling through, or on the way to a more perfect euro union?

Joshua Aizenman 03 July 2014

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The short history of the Eurozone has been remarkable and unprecedented – the euro project has moved from the planning board to a vibrant currency within less than ten years. Otmar Issing’s optimistic speech in 2006 reflects well the buoyant assessment of the first decade of the euro – an unprecedented formation of a new currency without a state.1 Observers viewed the rapid acceptance of the euro as a viable currency and the deeper financial integration of the Eurozone and the EU countries as stepping stones toward a stable and prosperous Europe.

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Topics:  Institutions and economics International finance Monetary policy

Tags:  Germany, ECB, eurozone, inflation targeting, euro, institutions, Eurozone crisis, GIIPS

Lacklustre investment in the Eurozone: Is there a puzzle?

Marco Buti, Philipp Mohl 04 June 2014

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On the importance of investment for the Eurozone economy

According to the European Commission’s most recent forecast, real economic activity in the Eurozone is expected to recover at a moderate pace until 2015, and to remain significantly weaker than in the US (European Commission 2014a).

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Topics:  EU policies Macroeconomic policy

Tags:  eurozone, growth, European Commission, investment, uncertainty, structural reforms, Bankruptcy, Eurozone crisis, public investment, banking union, financial fragmentation

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