French sovereign spreads have risen in recent months, coinciding with debate over the euro ahead of the country’s presidential elections in May. Italian sovereign spreads have been rising since the beginning of 2016. This column argues that investors are not pricing a break-up of France from the Eurozone. Most likely, they are pricing the possibility that the newly elected French government will not have enough supremacy to undertake important economic reforms. Market perception of redenomination risk in Italy, on the other hand, is rising slowly.
Roberto De Santis, 16 March 2017
Stelios Michalopoulos, Elias Papaioannou, 08 March 2017
Over the past decades, economists working on growth have ‘rediscovered’ the importance of history, leading to the emergence of a vibrant, far-reaching inter-disciplinary stream of work. This column introduces the third and final eBook in our three-part series which examines key themes in this emergent literature and discusses the impact they have on our understanding of the long-run influence of historical events on current economics. This volume focuses on the Americas and Europe and examines how events from history have helped shape their post-war economic identities.
Marco Onado, 21 February 2017
European banks have not recovered from the Global Crisis, in part due to heavy provisions for non-performing loans. This column argues that a comprehensive approach to the issue in Europe could address market inefficiencies and reduce bad loans to bearable levels. The establishment of a European scheme to securitise non-performing loans should form one of the next steps towards recovery.
Fabio Berton, Sauro Mocetti, Andrea Presbitero, Matteo Richiardi, 09 February 2017
Understanding the real effects of financial shocks is essential for the design of effective growth-restoring policies. This column uses data on job contracts matched with the universe of firms and their banks from a region of Italy to analyse the employment effects of financial shocks. Financially constrained firms – especially the least productive ones – significantly reduced employment, mostly of less-educated and lower-skilled workers with temporary contracts. While these results suggest possible distributional effects across workers, they could also reflect a productivity-enhancing reallocation function of financial shocks.
Pierre Cahuc, Olivier Charlot, Franck Malherbet, Hélène Benghalem, Emeline Limon, 05 January 2017
Temporary job contracts account for a substantial proportion of the workforce in countries such as France and Spain, but they can result in high job turnover and instability. This column assesses the impact of government policies that impose taxes on temporary contracts to induce employers to lengthen job durations. Such policies a negative impact on the labour market, reducing the mean duration of jobs and decreasing job creation. The introduction of open-ended contracts with no termination cost for separations occurring at short tenure may be more effective.
Massimo Morelli, Moritz Osnabrügge, 26 November 2016
Italians will vote next month on constitutional reform that aims to abolish perfect bicameralism. The reform would reduce the size of the Senate, and make the Chamber of Deputies the primary legislative body. This column discusses the effects of perfect bicameralism on legislative efficiency and the relationship between executive and legislative power. The reform would see a reduction in decree laws and legislative decrees, and lead to less frequent use of the confidence question. Additionally, it would see important improvements in bureaucratic efficiency.
Marco Fioramanti, Robert Waldmann, 19 November 2016
The European Commission is currently evaluating compliance with the Stability and Growth Pact across the Eurozone. However, differences in the econometric methods used by member states and by the Commission can lead to estimates that are at odds. This column argues that the Commission’s method of estimating the non-accelerating wage rate of unemployment for Eurozone members, which relies on an accelerationist Phillips curve, is inferior to specifications with a traditional Phillips curve. The findings highlight how technical aspects of an estimation procedure can have serious effects on policy outcomes.
Emmanuele Bobbio, 05 November 2016
Tax evasion imposes substantial costs on economies around the world. Beyond equity concerns, it erodes the tax base, with indirect effects on public investment and service provision. This column uses a model calibrated on the Italian economy to assess the direct and indirect effects of tax evasion on economic growth. Enforcing taxes would force small businesses to innovate, putting pressure on larger businesses and clearing the market of poorly performing small firms. Tackling tax evasion is thus important not only for equity reasons, but also for efficiency.
Sergei Guriev, Biagio Speciale, Michele Tuccio, 13 September 2016
A common explanation for the growth in unemployment in southern Europe after the Great Recession is lack of flexibility in over-regulated labour markets. This column examines wage adjustment in regulated and unregulated labour markets in Italy during the recent crisis. Using data on immigrant workers, it shows that before the crisis wages in the formal and informal sectors moved in parallel. During the crisis, however, formal wages did not adjust downwards, while informal labour wages did. Greater flexibility in wages in the formal market could slow the decline in employment.
Guglielmo Barone, Francesco David, Guido de Blasio, 10 September 2016
EU regional policies aim to lead regions onto a path of self-sustaining growth. Fully successful interventions should imply a higher growth rate, not only during the treatment (when the region benefits from the transfers), but also after the expiry of the programme (when the financing terminates). This column uses evidence from the Abruzzi region in Southern Italy to document that when the party is over and the funding ends, growth may slow down significantly.
Stefano Micossi, 20 August 2016
Some economists are approaching a consensus that the Eurozone’s financial architecture is now resilient enough to withstand another shock similar to that of 2010-11. This column argues that such a view may be overly optimistic. Economic and financial instability persists in member states and the banking sector, and institutions to tackle a shock remain incomplete. While the Eurozone remains vulnerable to a bad shock, the blanket application of burden sharing without consideration of current economic and financial conditions is unwise.
Fabio Schiantarelli, Massimiliano Stacchini, Philip E. Strahan, 13 August 2016
The recession has left a legacy of non-performing loans on Italian banks’ balance sheets. Policymakers in Italy understand well the importance of correcting their banks’ problems to foster a healthy economic recovery. This column argues that reforming the judicial and extra judicial processes for recovering collateral offers the potential of improving banks’ balance sheets and enhancing financial stability, not only by increasing loan collections directly, but also by improving borrowers’ incentive to service their existing debt.
Paolo Mauro, 07 August 2016
Policymakers use a well established traditional accounting method to analyse past paths and predict future paths of debt ratios. But the traditional accounting exercises underemphasise the role of economic growth. This column proposes a simple, extended accounting framework to recognise the importance of growth more fully and explicitly. It quantifies the role of economic growth in debt-to-GDP measurement for Ireland and Italy, who were similarly placed in 2012 but whose paths diverged significantly in subsequent years.
Decio Coviello, Andrea Guglielmo, Giancarlo Spagnolo, 07 August 2016
Open competition is regarded as a crucial ‘preventative tool’ that limits government discretion and abuse of power when awarding procurement contracts. However, various studies have identified numerous drawbacks to using open auctions when contracting is imperfect. This column discusses the effects of increased buyer discretion on public procurement in Italy. Increased discretion raises the number of repeated wins by contractors, suggesting long-term relationships between buyers and sellers. Furthermore, productive buyer-seller relationships appear to outnumber corrupt ones.
Jochen Andritzky, Lars Feld, Christoph Schmidt, Isabel Schnabel, Volker Wieland, 21 July 2016
To make the no-bailout clause credible and to enhance the effectiveness of crisis assistance, private creditors should contribute to crisis resolution in the Eurozone. This column proposes a mechanism to allow for orderly restructuring of sovereign debt as part of ESM programmes. If debt exceeds certain thresholds, the mechanism triggers an immediate maturity extension. In a second stage, a deeper debt restructuring could follow, depending on the solvency of a country. The mechanism could be easily implemented by amending ESM guidelines.
Yakov Amihud, Carlo Favero, 19 July 2016
The public debate over how to resolve the problem of Italian banks centres on whether there should be a government bailout, or whether banks’ bondholders should bear the burden. Absent from the discussion is what will happen to the banks’ stockholders, who should theoretically be wiped out before bondholders are asked to undergo a haircut. This column addresses the problem of who will manage the banks if stockholders quit. The Italian government should require banks to issue deep discount rights, which is a coercive way to raise equity and thus strengthen the banks’ balance sheet and their solvency.
Giudici Paolo, Laura Paris, 30 June 2016
In April 2016, Italian banks set up an equity fund intended to recapitalise troubled financial institutions in a ‘private bail-out intervention’ scenario, with a view to avoiding a bail-in under the European Bank and Recovery Resolution directive. This column analyses the main differences between a bail-in and a bail-out scenario. In particular, it compares contagion effects, and thus the total default probabilities of financial institutions in these two circumstances, in order to establish which banks would benefit more from a bail-out rather than a bail-in.
Sara Calligaris, Massimo Del Gatto, Fadi Hassan, Gianmarco Ottaviano, Fabiano Schivardi, 28 June 2016
Many advanced economies have experienced a productivity slowdown in recent years. Italy, however, has been experiencing such a slowdown since the mid-1990s. This column provides a detailed analysis of Italy’s patterns of misallocation over this period. Firms in the Northern regions, as well as large firms, have experienced the sharpest increase in resource misallocation. To tackle the resulting productivity slowdown, reforms need to address unemployment benefits and higher education, as well as encouraging investment in intangible assets.
Federico Cingano, Francesco Manaresi, Enrico Sette, 24 June 2016
Negative shocks to bank balance sheets are problematic not just for financial markets, but for employment and economic growth more widely. This column uses evidence on a bank liquidity shock in Italy in 2007-10 to show the impact on firms’ production, investment, and employment. Firms borrowing from banks with a high exposure to the shock experienced a more intense fall both in credit flows and in investment expenditure. While the credit cut has been homogeneous across borrowers, firms with easier access to external finance were able to contain the negative consequences of the drop in credit for investment.
Guglielmo Barone, Sauro Mocetti, 17 May 2016
Societies characterised by a high transmission of socioeconomic status across generations are not only more likely to be perceived as ‘unfair’, they may also be less efficient as they waste the skills of those coming from disadvantaged backgrounds. Existing evidence suggests that the related earnings advantages disappear after several generations. This column challenges this view by comparing tax records for family dynasties (identified by surname) in Florence, Italy in 1427 and 2011. The top earners among the current taxpayers were found to have already been at the top of the socioeconomic ladder six centuries ago. This persistence is identified despite the huge political, demographic, and economic upheavals that occurred between the two dates.