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121. Regulatory Challenges for the EU Asset Management Industry

Author:
Karel Lannoo
Publication Date:
04-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The European asset management industry is feeling squeezed from all sides, as a result of growing prudential, product and conduct regulation. A new Directive, UCITS IV, has only just been enacted, and already new challenges are emerging in the regulation of hedge and venture capital funds, the review of the regulatory regime for depositaries (or financial custodians) and amendments to the MiFID Directive.2 In addition, a new European supervisory framework is in the making, which implies much stricter controls on enforcement. These changes are taking place in the context of one of the largest declines suffered by the industry in the last two decades, from which many fund managers have not yet recovered. The era of light regulation is thus definitely over.
Topic:
Markets, Monetary Policy, and Financial Crisis
Political Geography:
Europe

122. The Non-Americanization of European Regulatory Styles: Data Privacy Regulation in France, Germany, Italy, and Britain

Author:
Francesca Bignami
Publication Date:
01-2010
Content Type:
Working Paper
Institution:
Minda de Gunzburg Center for European Studies, Harvard University
Abstract:
European countries have experienced massive structural transformation over the past twenty-five years with the privatization of state-owned industries, the liberalization of markets, and the rise of the European Union. According to one prominent line of analysis, these changes have led to the Americanization of European regulatory styles: previously informal and cooperative modes of regulation are becoming adversarial and litigation-driven, similar to the American system. This article explores the Americanization hypothesis with a structured comparison of data privacy regulation in four countries (France, Britain, Germany, and Italy) and a review of three other policy areas. It finds that European regulatory systems are converging, but not on American-style litigation, rather on an administrative model of deterrence-oriented regulatory enforcement and industry self-regulation. The explanation for this emerging regulatory strategy is to be found in government responses to market liberalization, as well as the pressure created by the governance process of the European Union.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Britain, Europe, France, Germany, and Italy

123. Not All Financial Regulation Is Global

Author:
Nicolas Véron and Stéphane Rottier
Publication Date:
09-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
“All politics is local,” as the saying goes, but all economics is global, and regulation is one area where these two realities meet and conflict. This has been particularly true for financial regulation in the wake of the unprecedented financial crisis.
Topic:
Economics, Genocide, International Cooperation, International Trade and Finance, and Monetary Policy
Political Geography:
Europe

124. The Transformational Impact of EMU and the Global Financial Crisis

Author:
Francesco Paolo Mongelli
Publication Date:
12-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The headwinds facing the euro area are many and substantial: there is no pretence of denial. While most attention is correctly devoted to the size of rescue packages for some countries and the terms of crisis management and resolution mechanisms, we argue that these challenges must also be met from within the euro area. We are aided by a simple framework illustrating how the benefits the euro can generate depend on the degree of openness, flexibility and income correlation among euro area countries. Sharing the euro has steadily transformed euro area economies that are now deeply interconnected. This is generating largely benign effects that represent the intrinsic value of the euro area: it is a shared asset. Yet, such integration has provided the ground for the transmission of the sovereign crisis: through financial exposure, trade linkages and cross-country asset ownership.
Topic:
Economics, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:
Europe

125. A Renewed Political Deal for Sustainable Growth within the Eurozone and the EU: An Open Letter to the President of the European Council

Author:
Daniel Gros, Stefano Micossi, Richard Baldwin, Giuliano Amato, and Pier Carlo Padoan
Publication Date:
12-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
Under current policies, the European Union will only be able to pull itself out of low growth and high unemployment very slowly – too slowly to exclude dangerous economic and political assaults on the Union's continuing cohesion and viability. What is needed is a substantial increase in the EU output growth rate, which has been persistently low for too long a time. With low growth, sovereign debt sustainability in a number of member states will remain uncertain, possibly leading to renewed strains in financial markets and rising spreads that will aggravate the costs of budgetary consolidation. The divergences in productivity and competitiveness and the current external imbalances they engendered can be unwound at an acceptable cost only if growth accelerates in the core and the periphery. On present trends, the adjustment burden might be unbearable for peripheral countries and generate strains that may eventually undermine the euro.
Topic:
Economics, Regional Cooperation, Monetary Policy, and Governance
Political Geography:
Europe

126. The European Council Summit and the Political Economics of the EMU Crisis

Author:
Christian Fahrholz and Cezary Wójcik
Publication Date:
11-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
Roger Ailes, a former advisor to Ronald Reagan, recalls in his book an intriguing practice of the ancient Romans: when they finished building a bridge or an arch, they enforced accountability by placing the engineer in charge beneath the construction when the scaffolding was removed. If the edifice did not hold, he was the first to know. We do not follow such drastic practices these days in Europe, but with some European economies shaking and the Greek sovereign debt crisis still not over, the architecture of the euro area has been certainly come under severe stress. Unfortunately, the 28-29 October 2010 European Council Summit has not made this architecture much safer.
Topic:
Economics, Regional Cooperation, Monetary Policy, and Financial Crisis
Political Geography:
Europe

127. 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

128. The G20 Meetings: No Common Framework, No Consensus

Author:
Michael Pettis
Publication Date:
05-2009
Content Type:
Policy Brief
Institution:
Carnegie Endowment for International Peace
Abstract:
Participants in the recently completed G20 meeting in London agreed on a number of measures, some substantial and some merely symbolic, but they sidestepped the real issues dividing the major economic powers and, in so doing, failed to address the root causes of the global trade and investment imbalances. This was almost inevitable. China, Europe, and the United States have incompatible conceptual frameworks for understanding the causes of the global financial crisis; furthermore, their conflicting domestic political constraints make agreement on solutions hard to reach. Europeans believe that the root cause of the crisis was excessively deregulated financial systems, and they are skeptical about U.S. and Chinese calls for fiscal expansion, worrying that excessive spending would prolong the imbalances and make the ultimate adjustment more difficult. China also believes that the roots of the crisis lie within the structure of the global financial system, although Beijing insists that it was mainly the reserve status of the U.S. dollar that permitted imbalances to develop to unsustainable levels. China is particularly vulnerable to trade protection and seeks to maintain open markets for its continued export of domestic overcapacity. Like the United States, it is pushing for more aggressive, globally coordinated fiscal expansion. However, because of rigidities in its financial system and development model, its fiscal response to the crisis may exacerbate the difficult global adjustment and may, ironically, increase the chances of trade friction. In a time of contracting demand, the United States controls two-thirds of the most valuable resource in the world: net demand. Consequently, it is U.S. policies that will determine the pace and direction of the global recovery, along with the institutional framework that will govern trade and investment relationships for decades to come. The crisis puts the United States more firmly at the center of the emerging world order than ever. So far, the United States has not understood the need to consider the global outcomes of its recovery policies. Until the major powers can reach consensus about the roots of the imbalance and cooperate on policies to promote recovery, it is likely that the world economy will get worse before it gets better. The United States will drive the recovery process, but in order to do so effectively it will need to recognize its position of strength and negotiate the appropriate agreements with other major powers, especially China, on the pace and nature of the adjustment.
Topic:
Economics, Globalization, International Trade and Finance, and Monetary Policy
Political Geography:
United States, China, Europe, and London

129. A Solution for Europe's Banking Problem

Author:
Adam S. Posen and Nicolas Véron
Publication Date:
06-2009
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Since mid-2007, public authorities in the European Union have broadly met the challenge of ensuring a functional degree of liquidity and preventing financial meltdown. The Eurosystem has even been ahead of the curve compared with the Federal Reserve and the Bank of England in discounting early on a wide variety of assets to a range of counterparties. However, despite unprecedented central bank intervention, extensive government guarantees since October 2008, and macroeconomic assistance (with the International Monetary Fund) to the European Union's weakest member states, the underlying state of continental Europe's banking industry remains very fragile.
Topic:
Economics, Markets, and Monetary Policy
Political Geography:
United States, United Kingdom, and Europe

130. The Estimated Trade Effects of the Euro: Why Are They Below Those From Historical Monetary Unions Among Smaller Countries?

Author:
Jeffrey Frankel
Publication Date:
04-2009
Content Type:
Working Paper
Institution:
Weatherhead Center for International Affairs, Harvard University
Abstract:
Andy Rose (2000), followed by many others, has used the gravity model of bilateral trade on a large data set to estimate the trade effects of monetary unions among small countries. The finding has been large estimates: Trade among members seems to double or triple, that is, to increase by 100-200%. After the advent of EMU in 1999, Micco, Ordoñez and Stein and others used the gravity model on a much smaller data set to estimate the effects of the euro on trade among its members. The estimates tend to be statistically significant, but far smaller in magnitude: on the order of 10-20% during the first four years. What explains the discrepancy? This paper seeks to address two questions. First, do the effects on intra-euroland trade that were estimated in the euro's first four years hold up in the second four years? The answer is yes. Second, and more complicated, what is the reason for the big discrepancy vis-à-vis other currency unions? We investigate three prominent possible explanations for the gap between 15% and 200%. First, lags. The euro is still very young. Second, size. The European countries are much bigger on average than most of those who had formed currency unions in the past. Third, endogeneity of the decision to adopt an institutional currency link. Perhaps the high correlations estimated in earlier studies were spurious, an artifact of reverse causality. We test the hypotheses regarding lags and size directly; and we address the endogeneity problem by means of a natural experiment involving trade between the CFA countries of Africa and the euro countries of Europe. Contrary to expectations, we find little evidence that any of these factors explains a substantial share of the gap, let alone all of it.
Topic:
International Trade and Finance, Bilateral Relations, and Monetary Policy
Political Geography:
Europe