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611. Can Italy and Spain survive rates of 6-7%?

Author:
Daniel Gros
Publication Date:
07-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The sentiment that the euro is now in real danger is based in large part on the widespread conviction that interest rates of 6-7% are simply unsustainable for both Italy and Spain., After taking a closer look at the fundamentals, however, Daniel Gros concludes in this new Policy Brief that both countries should be able to live with this level of interest rates for quite some time, but only if they mobilize domestic savings, which remain strong in both countries. For Spain, some debt/equity swaps are also needed.
Topic:
Debt, Economics, Markets, and Financial Crisis
Political Geography:
Europe, Spain, and Italy

612. Unholy compromise in the eurozone and how to right it

Author:
Stefano Micossi
Publication Date:
07-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Two years after the first Greek rescue in May 2010, crisis management in the eurozone has still failed to restore confidence. A vivid picture of the situation can be found in Figure 1: the constellation of spreads on ten-year sovereign debts over the Bund in the eurozone is wider than it was before monetary union, as though financial markets had already discounted its breakdown. Temporary respites, notably in the early part of 2012, have not interrupted the trend of increasing divergence that risks undermining the credibility of adjustment efforts under way.
Topic:
Debt, Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
Europe

613. Pre-empting Technical Barriers in the Single Market

Author:
Jacques Pelkmans and Anabela Correia de Brito
Publication Date:
07-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Effective enforcement and compliance with EU law is not just a legal necessity, it is also of economic interest since the potential of the Single Market will be fully exploited. Enforcement barriers generate unjustified costs and hindrances or uncertainty for cross-border business and might deprive consumers from receiving the full benefit of greater choice and/or cheaper offers.
Topic:
Economics, Markets, Monetary Policy, and Law
Political Geography:
Europe

614. 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 (CEPS)
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

615. A simple model of multiple equilibria and sovereign default

Author:
Daniel Gros
Publication Date:
07-2012
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
This paper presents a simple model that incorporates two types of sovereign default cost: first, a lump-sum cost due to the fact that the country does not service its debt fully and is recognised as being in default status, by ratings agencies, for example. Second, a cost that increases with the size of the losses (or haircut) imposed on creditors whose resistance to a haircut increases with the proportional loss inflicted upon them.
Topic:
Debt, Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
Europe

616. Money and power: EU budget negotiations in a time of austerity

Author:
Sara Hagemann
Publication Date:
05-2012
Content Type:
Policy Brief
Institution:
Danish Institute for International Studies (DIIS)
Abstract:
The ongoing negotiation of the EU's multi-annual budget is heavily constrained by how the decision process takes place. Governments focus on narrowly defined national interests, rather than on securing a better budget for Europe. While the budget is small in size, it could be used as a powerful political tool for much needed economic growth policies on a larger scale.
Topic:
Debt, Economics, Government, and Financial Crisis
Political Geography:
Europe

617. Flexicurity in Italy – how far is Rome from Copenhagen?

Author:
Ilaria Maselli
Publication Date:
09-2012
Content Type:
Policy Brief
Institution:
Danish Institute for International Studies (DIIS)
Abstract:
The recently approved labour market reform in italy is clearly inspired by the danish flexicurity model. However, despite the noble intention and some improvements, the reform is failing to bring the long- hoped-for change, especially regarding the dualisation of the labour market and the universalisation of welfare provision.
Topic:
Economics, International Trade and Finance, Markets, Regional Cooperation, and Financial Crisis
Political Geography:
Europe and Italy

618. From Bretton Woods to the Euro: How Policy-Maker Overreach Fosters Economic Crises

Author:
Pierre Siklos
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation (CIGI)
Abstract:
This paper considers the relevance of the Bretton Woods system for the prospects of reform of the international monetary system and in the context of the ongoing euro area financial crisis. It explores the challenges that must be met in attempting to reform the present international monetary system and euro area policies. After considering what resonates, and what does not, from the Bretton Woods regime of fixed exchange rates, it examines some of the key lessons from that era. The paper concludes that policy makers at Bretton Woods promised too much in terms of the stability and durability of the policy regime, and did not give sufficient thought to how the arrangement devised in the 1940s would actually function. They failed to instill the logic of collective action among their members. In particular, the Bretton Woods system failed because the agreement paid virtually no attention to governance issues. Finally, in terms of the current situation in the euro zone, policy makers have failed to recognize that the problems are not purely economic; domestic political considerations are important too. A political-economy approach is required for the design of new international monetary arrangements. The same principles apply today when we contemplate the survival of the euro zone. Politicians need to be more realistic and less ambitious, lest they create the preconditions for the next global crisis.
Topic:
Economics, Global Recession, Financial Crisis, and Governance
Political Geography:
Europe

619. Security Sector Transformation in the Arab Awakening

Author:
Donald J. Planty
Publication Date:
09-2012
Content Type:
Working Paper
Institution:
United States Institute of Peace
Abstract:
The Arab Awakening opened the door to democratic political change in the Middle East and North Africa (MENA). Security sector reform (SSR) is an integral component of the nascent democratic process in the region. While SSR is a long-term process, it should be a key part of institution building in the new democracies. Democracy requires security institutions that are open, professional, and responsive to public needs. The transitions to democracy are varied in nature and scope. SSR will differ by country and must be tailored to the political realities and specific circumstances of each state. The international community can foster successful SSR processes by calibrating its assistance according to the reform efforts in each country. A general or “one-size-fits-all” approach to SSR will not be successful. A sense of political powerlessness, an unresponsive bureaucracy, a general lack of opportunity, economic stagnation (including high unemployment), and repressive security forces all contributed to the Arab Awakening. As a result of the upheaval, democratic forces in several of the MENA countries are pushing for transparency and accountability in the security services. SSR must be undertaken in a holistic manner, couched within the framework of overall democratic reform and linked to other broad policies such as justice sector reform, evolution of the political process, and economic development. SSR will only be achieved if it is integrated and pursued in unison with these larger processes of democratic change. The international community, especially the United States and the European Union, need to foster democratic developments and, in particular, to support and coordinate SSR.
Topic:
Conflict Resolution, Security, Democratization, Economics, and Regime Change
Political Geography:
Europe, Middle East, Arabia, and North Africa

620. Unleashing Competition in EU Business Services

Author:
Henk L.M. Kox
Publication Date:
09-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
In most EU member states, the business services industry has booked no productivity growth during the last two decades. The industry's performance in the other member states was weaker than that of its US counterparts. Exploring what may be causing this productivity stagnation, this policy brief reports that weak competition has contributed to the continuing malaise in European business services. The study analyzed the persistence (over time) of firm-level inefficiencies. The evidence further suggests that competition between small firms and large firms in business services is weak. Markets for business services work best in countries with flexible regulation on employment change and with low regulatory costs for firms that start up or close down a business. Countries that are more open to foreign competition perform better in terms of competitive selection and productivity.
Topic:
Economics, International Trade and Finance, Markets, and Regional Cooperation
Political Geography:
United States and Europe