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81. Oil Exporters to the Euro's Rescue?

Author:
Philip K. Verleger
Publication Date:
12-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
When a boat springs a leak far from shore, it is customary for all hands to man the pumps—be they friends or enemies, passengers or crew. Every individual's survival depends on the actions of his or her compatriots. So it is with the global economy today.
Topic:
Debt, Markets, Oil, International Monetary Fund, and Financial Crisis
Political Geography:
Europe

82. US Lessons for the Eurozone: Restoring Confidence through Transparency

Author:
Julie Chon
Publication Date:
12-2011
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
When it comes to resolving financial crises, size matters, but so does transparency. In both the US and European crises, the drive for size—firing off enough public funds to plug the hole in the financial system—has proven to be self-defeating as markets raise ever higher, unrealistic, and inappropriate expectations for government policy. This strategy addresses some of the economics and none of the politics of crisis management. The race to meet the size test distracts policymakers from addressing the real impediment to restoring investor and public confidence: the inherent uncertainty and lack of transparency associated with extraordinary government actions in times of crisis. The absence of transparent decision-making inflicts a costly blow to the credibility of policymakers because markets and citizens cannot see or believe what leaders are doing to stabilize the financial system.
Topic:
Debt, Economics, International Trade and Finance, and Financial Crisis
Political Geography:
United States and Europe

83. How Europe Can Muddle Through Its Crisis

Author:
Jacob Funk Kirkegaard
Publication Date:
12-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
As Europe's financial market contagion spreads to systemically important eurozone members, the region is echoing with "end-game scenarios" (Johnson and Boone 2010) and demands for major new steps by European policymakers (Financial Times 2010). Among these would be a European "fiscal transfer union," a new common eurozone bond, action by the European Central Bank (ECB) to monetize sovereign debts, and finally a eurozone breakup itself.
Topic:
Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe

84. Adjustment Difficulties in the GIPSY Club

Author:
Daniel Gros
Publication Date:
03-2010
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper describes the key economic variables and mechanisms that will determine the adjustment process in those euro area countries now under financial market pressure. (Greece, Ireland, Portugal, Spain and Italy = GIPSY) The key finding is that the adjustment will be particularly difficult for Greece (and Portugal) because these are two relatively closed economies with low savings rates. Both of these countries are facing a solvency problem because they combine high debt levels with low growth and high interest rates. Fiscal and external adjustment is thus required for sustainability, not just to satisfy the Stability Pact. By contrast, Ireland and Spain face more of a liquidity than a solvency problem. Italy seems to have a much better starting position on all accounts. Fiscal adjustment alone will not be sufficient to ensure sustainability. Without significant reductions in labour costs, these economies will face years of stagnation at best. Especially in the case of Greece, it is imperative that the cuts in public sector wages are transmitted to the entire economy in order to restore competitiveness, and thus ensure that export growth can become a vital safety valve. Without an adjustment of wages in the private sector, the adjustment will become so difficult that failure cannot be excluded.
Topic:
Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe, Greece, Spain, Italy, Portugal, and Ireland

85. Lessons from the Asian Monetary Fund for the European Monetary Fund

Author:
Yonghyup Oh
Publication Date:
04-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The euro area is facing a challenge with Greece in danger of falling into sovereign default and some of its other members, the so-called 'GIPSY' nations, finding themselves in serious financial distress. Creation of a European Monetary Fund to deal more effectively with this type of situation is gaining support. This paper draws lessons from the Asian experience that might be applied to the current European development.
Topic:
Debt, Economics, International Trade and Finance, and Monetary Policy
Political Geography:
Europe

86. Will It Be Brussels, Berlin, or Financial Markets that Check Moral Hazard in Europe's Bailout Union? Most Likely the Latter!

Author:
Jacob Funk Kirkegaard
Publication Date:
10-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
So far so good for the European Union in preventing the Greek sovereign debt crisis from spiraling out of control in the short term. But with Greece in May 2010 requiring an unprecedented bailout from the European Union/IMF to avoid immediate default and 25 of the European Union's 27 member states currently subject to an “excessive deficit procedure” (European Commission 2010i), it remains evident that the European Union's existing fiscal surveillance framework patently failed both before and during the Great Recession and that Europe's leaders must head back to the drawing board for a required long term reform of the EU fiscal policy and surveillance framework.
Topic:
Debt, Economics, and Financial Crisis
Political Geography:
Europe and Greece

87. Sovereign Bankruptcy in the European Union in the Comparative Perspective

Author:
Leszek Balcerowicz
Publication Date:
12-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper distinguishes four alternative sovereign debt resolution mechanisms: pure market solutions, modified market solutions, crisis lending by the IMF and other institutions, and the proposed Sovereign Debt Restructuring Mechanism (SDRM). It is hard to find—at the general level of analysis—the unique advantages of SDRM. The assessment of the European Stabilization Mechanism will ultimately depend on its operation, especially whether it will be a tool of subsidizing countries in debt distress or an instrument of fiscal crisis lending. The present fiscal problems in the eurozone are due to the erosion of fiscal discipline and not to the lack of strong compensatory transfers within the eurozone. The right model to look at the conditions for the stability of the eurozone is not a single state but the gold standard–type system, a system of sovereign states with a (de facto) single currency. Based on this analogy and considering modern developments, three types of measures are needed to safeguard the stability of the eurozone: (1) measures that would reduce the procyclicality of the macroeconomic policies and of the economy; (2) reforms that would help the eurozone economies grow out of increased public debt; and (3) steps to increase the flexibility of the economy so that it can deal with the future shocks in a better way.
Topic:
Debt, Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
Europe

88. EU Administrative Conditionality and Domestic Downloading: The Limits of Europeanization in Challenging Contexts

Author:
Arolda Elbasani
Publication Date:
07-2009
Content Type:
Working Paper
Institution:
The Kolleg-Forschergruppe (KFG)
Abstract:
How and to what extent have European ideas transformed the political-administrative institutions in the candidate countries in the East? Which conditions work to mitigate and undermine the impact of the European Union (EU) in these contexts? Research on post-communist transformations, by and large, holds EU enlargement as a successful attempt of institutional transfer in the candidate countries. However, while the EU proved to be successful in the first wave of enlargement in the East, we know much less about its effects in 'borderline' cases that lack the will and/or the capacity to pursue required reforms, thus posing a real challenge to EU enlargement strategy. The paper aims to trace the effects of enlargement in challenging domestic environments focusing on public administration reform in post-communist Albania. Differently from the classic Europeanization literature, the bottom-up approach used here, seeks to bring to the fore the crucial role of domestic agency to download and sometimes mitigate European transfers in the national arena. Evidence from the case study shows that governing actors have used EU enlargement as a means to further their strategic goals – they have preferred to talk the talk of reform in order to reap the benefits associated with EU integration and broader external assistance, but also resist implementation of new rules that curtail the political control of the state and the ongoing system of spoils built throughout the post-communist transition. The EU's broad thresholds on administrative reform and the weak association between monitoring of progress and rewards have left ample space for the governing actors to merely pay lip service to the EU prescriptions, while getting full control of a poli-ticized administration.
Topic:
Cold War, Communism, Debt, and Democratization
Political Geography:
Europe

89. Emerging Market Business Cycles with Remittance Fluctuations

Author:
Ceyhun Bora Durdu and Serdar Sayan
Publication Date:
09-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper analyzes the implications of remittance fluctuations for various macroeconomic variables and Sudden Stops. The paper employs a quantitative two-sector model of a small open economy with financial frictions calibrated to Mexican and Turkish economies, two major recipients, whose remittance receipts feature opposite cyclical characteristics. We find that remittances dampen the business cycles in Mexico, whereas they amplify the cycles in Turkey. Their quantitative effects in the long run, approximated by the stochastic steady state are mild. In the short run, however, remittances have quantitatively large impacts on the economy, when the economy is borrowing constrained. This is because agents in the economy cannot adjust their precautionary wealth to sudden tightening in credit, hence, fluctuations in remittances get magnified through an endogenous debt-deflation mechanism. Our findings suggest that procyclical (or countercyclical) remittances can play a significant deepening (or mitigating) role for Sudden Stops.
Topic:
Debt, Economics, and Credit
Political Geography:
Europe, Turkey, Asia, North America, and Mexico

90. The New Capital Requirements Directive: What pieces are still missing from the puzzle?

Author:
Rym Ayadi
Publication Date:
09-2005
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
After almost seven years of hard work to produce a new substantive piece of legislation updating the current banking regulation for European credit institutions and investment firms – the Capital Requirements Directive (CRD) – it looks like its timely adoption is still uncertain. The main problem is the dissatisfaction of Parliament with its limited role in comitology and in the Lamfalussy process, which has led it to suspend 'temporarily' the comitology provisions of the CRD, casting doubt over the future ability to amend the legislation. The European Constitution addresses Parliament's concern about ensuring democratic accountability in the comitology process in Art. 36. The pause for reflection on the Constitution prompted by the no-votes in the French and Dutch referenda has re-ignited the issue and is forcing EU institutions to seek a new inter-institutional agreement on this issue.
Topic:
Debt, Economics, and Government
Political Geography:
Europe