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1. The Spanish Hangover

Author:
Daniel Gros and Cinzia Alcidi
Publication Date:
04-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
Spain faces high unemployment and slow growth. This paper focuses on an important source of those problems, namely its housing market. While some adjustment has occurred since Spain's housing bubble burst in 2008, the authors find that house prices and construction need to decrease more to slow Spain's unsustainable accumulation of foreign debt.
Topic:
Debt, Economics, Markets, and Financial Crisis
Political Geography:
Europe and Spain

2. 'Grexit': Who would pay for it?

Author:
Daniel Gros, Cinzia Alcidi, and Alessandro Giovannini
Publication Date:
05-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
What would be the cost if Greece were to exit from the eurozone? This much-debated question cannot be answered with a single number. The consequences of Greece's exit would depend decisively on the exact circumstances of events in the country itself as well as the general state of financial markets in the eurozone.
Topic:
Debt, Markets, Regional Cooperation, Monetary Policy, and Financial Crisis
Political Geography:
Europe and Greece

3. Central Banks in Times of Crisis: The FED vs. the ECB

Author:
Daniel Gros, Cinzia Alcidi, and Alessandro Giovannini
Publication Date:
07-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
Different economic and financial structures require different crisis responses. Different crises also require different tools and resources. The first 'stage' of the financial crisis (2007-09) was similar on both sides of the Atlantic, and the response was also quite similar. The second stage of the crisis is unique to the euro area. Increasing financial disintegration within the region has forced the ECB to become the central counterparty for the entire cross-border banking market and to intervene in the sovereign bond market of some stressed countries. The actions undertaken by the European Central Bank (ECB), however, have not always represented the best response, in terms of effectiveness, consistency and transparency. This is especially true for the Securities Markets Programme (SMP): by de facto imposing its absolute seniority during the Greek PSI (private sector involvement), the ECB has probably killed its future effectiveness.
Topic:
Debt, Economics, International Trade and Finance, Markets, Monetary Policy, and Financial Crisis
Political Geography:
Europe

4. Adjustment Difficulties and Debt Overhangs in the Eurozone Periphery

Author:
Daniel Gros and Cinzia Alcidi
Publication Date:
05-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper describes four key drivers behind the adjustment difficulties in the periphery of the eurozone: The adjustment will be particularly difficult for Greece and Portugal, as two relatively closed economies with low savings rates. Both of these countries combine high external debt levels with low growth rates, which suggest they are facing a solvency problem. In both countries fiscal adjustment is a necessary condition for overall sustainability, but it not sufficient by itself. A sharp cut in domestic consumption (or an unrealistically large jump in exports) is required to quickly establish external sustainability. An internal devaluation (a cut in nominal wages in the private sector) is unavoidable in the longer run. Without such this adjustment in the private sector, even continuing large-scale provision of official funding will not stave off default. Ireland's problems are different. They stem from the exceptionally large losses in the Irish banks, which were taken on by the national government, leading to an explosion of government debt. However, the Irish sovereign should be solvent because the country has little net foreign debt. Spain faces a similar problem as Ireland, although its foreign debt is somewhat higher but its construction bubble has been less extreme. The government should thus also be solvent, although further losses in the banking system seem unavoidable. Italy seems to have a better starting position on almost on all accounts. But its domestic savings rate has deteriorated substantially over the last decade.
Topic:
Economics, International Trade and Finance, and Financial Crisis
Political Geography:
Spain and Ireland

5. Fiscal Policy Coordination and Competitiveness Surveillance: What solutions to what problems?

Author:
Daniel Gros and Cinzia Alcidi
Publication Date:
09-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
In June 2010, both the European Commission and the European Central Bank published documents containing ideas for enhancing European economic governance. Both proposals stress the need for stronger surveillance on a country-by-country basis and the effective enforcement of surveillance through incentives and a wider spectrum of sanctions.
Topic:
Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe

6. The Impact of the Crisis on the Real Economy

Author:
Daniel Gros and Cinzia Alcidi
Publication Date:
01-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
This crisis was caused by a combination of asset price bubbles, mainly in the real estate sector, and a credit bubble that led to excessive leverage. This is wellknown. What is less well-known is that on both accounts the euro area was affected by both 'bubble' symptoms as much as the US.
Topic:
Economics, Markets, and Financial Crisis
Political Geography:
United States and Europe

7. What lessons from the 1930s?

Author:
Daniel Gros and Cinzia Alcidi
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper explores three areas in which the experience of the Great Depression might be relevant today: monetary policy, fiscal policy and the systemic stability of the banking system. We confirm the consensus on monetary policy: deflation must be avoided. With regard to fiscal policy, the picture is less clear. We cannot confirm a widespread opinion according to which fiscal policy did not work because it was not tried. We find that fiscal policy went to the limit of what was possible within the confines of sustainability, as they existed then. Our investigation of the US banking system shows a surprising resilience of the sector: commercial banking operations (deposit-taking and lending) remained profitable even during the worst years. This suggests one policy conclusion: At present the authorities in both the US and Europe have little choice but to make up for the losses on 'legacy' assets and wait for banks to earn back their capital. But to prevent future crises of this type, one should make sure that losses from the investment banking arms cannot impair commercial banking operations. At least a partial separation of commercial and investment banking thus seems justified by the greater stability of commercial banking operations.
Topic:
Economics, Markets, and Financial Crisis
Political Geography:
United States and Europe