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61. Excess liquidity in the euro area: developments and implications

Author:
Marek Dabrowski
Publication Date:
09-2023
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
The excess liquidity in the euro area is a product of a long period of quantitative easing. It changed the operational framework of the European Central Bank (ECB)’s monetary policy from the scarce reserves system (SRS) to the abundant reserves system (ARS). To eliminate excess liquidity and return to the SRS, the ECB must intensify quantitative tightening, which is also essential for successful disinflation. Fiscal adjustment can help in this process and mitigate the risk of financial instability. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 25 September 2023.
Topic:
Monetary Policy, Finance, European Central Bank, and Liquidity
Political Geography:
Europe

62. Place of crowdfunding in financing investment projects in Poland

Author:
Marcin Czugan, Michał Karwasiński, Jarosław Mizera, and Ewa Balcerowicz
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Center for Social and Economic Research - CASE
Abstract:
Crowdfunding for business ventures, commonly referred to interchangeably as investment crowdfunding or equity crowdfunding, is a young practice. It first appeared in the USA (in 2009), and is now a rapidly expanding market in developed economies. The first case of investment crowdfunding in Poland, historically the first issuance, took place in 2012, barely three years later than in the United States. Such crowdfunding is a form of raising capital from the market (from investors) for the development of companies by entrepreneurs or owners, acting as the issuers. Specialised companies (fintechs) creating so-called crowdfunding platforms for matching demand with supply – and where offerings are announced and transactions carried out – are the market’s intermediaries. The report we are releasing discusses the specifics of investment crowdfunding, or in other words how this form of raising funds differs from older forms of external financing for businesses. It also presents the potential and the role of crowdfunding for the development of the capital market in Poland, describing demand for this type of financing, the level of interest among investors, and what both demand and interest depend on. In November 2021, European regulations were introduced specifically for this new market. Our authors analyse how these regulations will affect the future of equity crowdfunding in Poland. This issue of mBank-CASE Seminar Proceedings, on crowdfunding in Poland, follows on from a seminar held in March 2022. Three guests at the seminar were experts participating directly in the development of this new component of Poland’s capital market, therefore possessing unique knowledge of the specifics of crowdfunding, and its strengths and limitations.
Topic:
Finance, Innovation, Economic Development, Private Sector, Knowledge Economy, and Crowdfunding
Political Geography:
Europe and Poland

63. Anti-fragmentation: an incomplete diagnosis and wrong solution

Author:
Marek Dąbrowski
Publication Date:
03-2023
Content Type:
Case Study
Institution:
Center for Social and Economic Research - CASE
Abstract:
A study by Marek Dąbrowski (CASE) entitled “Anti-fragmentation: an incomplete diagnosis and wrong solution”, requested by the European Parliament's Committee on Economic and Monetary Affairs (ECON), was published in the Monetary Dialogue Papers series in September 2022. Since the 1990s, the public debt-to-GDP ratio has gradually increased in almost all current euro area member countries. In most of them, it now exceeds the Maastricht reference value of 60%, in several of them – 100%, and in a few cases – even more. It creates a severe challenge to the stability of public finances, the entire financial system and monetary stability in the euro area being also the primary cause of the so-called fragmentation. The study begins with an analysis of the excessive public debt in the euro area. An overview of the fiscal stance in the euro area as a whole and, separately, in individual Member States from 1997 to 2021 is complemented with the analysis of mechanisms of fiscal discipline – again on the EU/euro area level and the national level separately. Three causes of the ineffectiveness of these mechanisms are then identified: (1) political economy factors at the national level; (2) political economy factors at the European level; and (3) fallacies of economic science. The next part concerns ECB involvement in the sovereign debt market in the euro area. A historical analysis is conducted starting from the period of the EFC (2010–2015) to quantitative easing of 2014-2022. Two important periods from recent history are detailed - additional quantitative easing of the pandemic era (2020–2022) and the turn towards monetary policy tightening in 2022. In the last part of the study, the author argues that the problem of “fragmentation” is wrongly formulated. It is a secondary symptom of the excessive sovereign indebtedness in some euro area economies. It should be remedied by fiscal policy measures (fiscal consolidation) rather than by the ECB’s quasi-fiscal activities. The latter is not consistent with its legal status, compromises its independence (and credibility of the euro), and undermines its ability to deliver on its price stability mandate. When a targeted market intervention is necessary, it should be provided by the European Stability Mechanism, the institution created for this purpose in 2012, instead of the ECB.
Topic:
Globalization, European Union, Finance, Trade, and Economic Integration
Political Geography:
Europe

64. Cooperative Federalism in India: Resetting the Fiscal Architecture: Lessons for India

Author:
Kandarp Patel and Anoop Singh
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Centre for Policy Research, India
Abstract:
The COVID-19 pandemic brought significant challenges to public finances, raising global debt to record-high levels and necessitating the suspension of fiscal rules across the globe. As we approach the aftermath of the pandemic, the challenge is to reset the pillars of the fiscal architecture and better manage public finances across all levels of government—as the lynchpin of any successful growth strategy in a post-pandemic world. This situation offers an opportunity to rethink fiscal rules and make fiscal policy more agile in responding to crises, without undermining fiscal sustainability. A risk-based medium-term fiscal framework that combines standards, rules, and strengthened institutions would strike a better balance between flexibility and credibility. Overall, for India to achieve its full potential for economic growth and development, it needs to improve the quality and efficiency of public spending and financial management across all levels of government. In doing this, India should consider moving toward a new principle-based fiscal strategy, complemented with public financial management reforms and setting up an independent fiscal institution. This process will need to be undertaken in close collaboration with the States.
Topic:
Finance, Economic Growth, COVID-19, and Public Debt
Political Geography:
South Asia and India

65. The EU-Africa partnership and development aid: Assessing the EU’s actorness and effectiveness in development policy

Author:
Rym Ayadi and Sara Ronco
Publication Date:
04-2023
Content Type:
Commentary and Analysis
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Development aid is considered a policy area where the EU is particularly influential. This CEPS In-Depth Analysis report provides an overview of the evolution of global and European governance in development policy and relations with the African continent. Exploring the period 1995-2021, the research highlights how global governance in development aid and relations with Africa have evolved in terms of both the tools used and the actors involved during the last decades. As supported by the EU, another important pattern is the shift from traditional official development assistance (ODA) to public-private financial frameworks, and from financing development projects to financing investment for infrastructure development. Assessing the dimensions of the EU’s actorness over time reveals an increasing trend, notably concerning its authority, autonomy and cohesion. However, more external dimensions of actorness (such as the opportunity to act and recognition) show a decreasing trend over the time period studied. The need for coherence is one of the main challenges facing the EU if it is to increase its actorness and effectiveness in development policy and its relations with Africa. Future EU policies on migration issues will also play a critical role in the EU’s actorness vis-à-vis Africa. Another challenge will be for the EU to maintain its key role as a development actor, better coordinating its development agencies and financial institutions (both national and international) to implement and coordinate public-private partnerships, co-guarantee schemes and collaborative blended finance platforms. This report is part of a series drawing on the outcomes of the EU-funded TRIGGER (Trends in Global Governance and Europe’s Role) project that ran from 2018 to 2022. Using the conceptual framework developed as part of TRIGGER, the report moves beyond observing the characteristics of the EU as an actor to explore its actorness/effectiveness over time in a specific policy domain – in this case, development policy.
Topic:
European Union, Partnerships, Finance, and Development Aid
Political Geography:
Africa and Europe

66. Europe after the War

Author:
Rym Ayadi, Paolo Garonna, and Goran Svilanovic
Publication Date:
02-2023
Content Type:
Special Report
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
This book, a collaboration between CEPS and the Euro-Mediterranean Economists Association (EMEA), is a collection of papers which discuss the impact of the war in Ukraine on Europe spanning a wide range of areas from geopolitical scenarios to economic prospects, sustainable energy to logistics, and the Eastern European dimension to EU-Africa relations. The authors of this book believe that we are living an unprecedented ‘European moment’, and that this moment can and should be seized upon to respond to present and future shocks. Both the papers collected in this volume and the manifesto presented point out the most promising directions of the leap forward that is required – more assertive and unified policies towards Eastern Europe, the Euro-Mediterranean region and Africa, a federalist drive towards more effective and fairer economic and social governance, the fight against polarisation, and the strengthening of liberal democracy.
Topic:
European Union, Finance, Cooperation, and Russia-Ukraine War
Political Geography:
Africa, Europe, and Mediterranean

67. The Internationalisation of the Chinese Renminbi and China’s Digital Currency Plans

Author:
Lorenzo Bencivelli and Michele Savini Zangrandi
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
China has made major reforms to boost the international standing of its currency. The global presence of the renminbi remains contained, however. This is due to China’s economic structure (a persistent current account surplus and a partially closed financial account) and the government’s grip on the economy. China is also a Central Bank Digital Currency (CBDC) forerunner. The digital yuan (e-cny) is already active in a large scale trial. Many claim that the e-cny could provide a major boost to the internationalisation of the renminbi. However, the internationalisation of the renminbi would require major economic reforms that cannot be bypassed by the deployment of new technologies. The e-cny is therefore unlikely to boost the renminbi’s international presence. Yet, its underlying technology could be exported to other countries wishing to deploy their own-currency CBDCs. Much like with telecommunication equipment, this scenario would put China in the position of being a provider of a critical infrastructure. In the longer run, the export of e-cny technology might also facilitate the creation alternative payment networks, though this scenario is not very likely.
Topic:
Political Economy, Governance, Finance, Currency, and Digital Policy
Political Geography:
China and Asia

68. Managing the financial impact of cybersecurity incidents

Author:
Zsolt Bederna and Tamás Szádeczky
Publication Date:
03-2023
Content Type:
Journal Article
Journal:
Security and Defence Quarterly
Institution:
War Studies University
Abstract:
The complex relationships of economic actors and the high dependency on information and communication technologies make it necessary for all relevant entities to develop protection. This protection should include preventive and reactive controls in a risk-proportionate manner in relation to the business value protected. We aimed to develop a solution to support cybersecurity-related business decisions with financial analytics. The risk-based approach helps management find the optimum solution with minimal costs, where protection prevents some incidents from occurring, while the risks associated with other incidents are accepted in an informed way. The security industry developed a number of apparatuses to find the optimum security controls that enforced the fiscal aspects, which typically contain solutions used in planning. However, the actual expenditure often differs from the planned budget for several reasons, one of which is the occurrence of security incidents. We used the common methodology toolset for financial analysis (NPV, NFV, risk assessment). We developed novel metrics based on these that can be used in cybersecurity management. Within the framework thus defined, the article discusses the economic context of the effects of incidents involving Meta (previously Facebook) services from 2016 to 2020. This paper introduces the ‘Effect of incidents’ metric to measure the impact of unplanned incidents’ on actual expenditure compared to the planned budget and the ‘Incidence of incident recognition’ metric to measure deviations of an incident’s impact as perceived by owners relative to the effect on the value of the assets. The paper also proves the applicability of those metrics using the example of Meta.
Topic:
Science and Technology, Cybersecurity, Finance, and Economy
Political Geography:
Global Focus

69. Maximising the impact of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP)

Author:
Vincent Obisie-Orlu
Publication Date:
12-2023
Content Type:
Policy Brief
Institution:
Good Governance Africa (GGA)
Abstract:
This briefing assesses South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). It acknowledges programme achievements while addressing challenges, including delays to the procurement process and financial issues facing REIPPPP projects. It underscores the necessity for electricity industry reform and more cohesive energy policies. It proposes changes to how investment decisions are made, and collaboration occurs alongside the REIPPPP process to promote private sector investment, develop localisation within the REIPPPP and reduce supply chain vulnerabilities. Lastly, it provides a thorough analysis to inform recommendations that will maximise REIPPPP’s role in realising South Africa’s energy objectives.
Topic:
Reform, Finance, Investment, Electricity, Renewable Energy, and Procurement
Political Geography:
Africa and South Africa

70. Paying with Austerity: The Debt Crisis and Restructuring in Sri Lanka

Author:
C. P. Chandrasekhar, Jayati Ghosh, and Debamanyu Das
Publication Date:
12-2023
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
On April 12, 2022, Sri Lanka defaulted on external debt service commitments. Announcing the “pre-emptive default,” pending restructuring, the government also announced that it was suspending repayments due in 2022 on its external debt. By May, Sri Lanka was formally in default, becoming the first country in the Asia-Pacific region to default on debt in two decades. There were medium-term factors that underlay the crisis, not least of which was the chronic dependence on foreign finance, especially debt, to cover widening current account deficits that followed the IMF-inspired and dictated embrace of liberalization policies starting in the late 1970s. In recent years, following the global financial crisis and the end of the civil war in 2009, this dependence on external borrowings intensified. There was also a dramatic shift towards bilaterally, besides multilaterally, financed investment projects and increasing reliance on the bond market, partly to meet debt service commitments on accumulated debt. Given this vulnerability, a crisis was precipitated by a collapse in foreign exchange receipts during the Covid pandemic, due to falling exports, near-zero tourist arrivals and reduced remittances and the subsequent spike in the outflow of foreign exchange because of the speculation-induced rise in the prices of fuel and food. This paper details the events which culminated in the Sri Lankan debt crisis, assesses the appropriateness of the official, IMF-prescribed strategy of adjustment and debt restructuring, considers the experience with restructuring thus far, and explores alternatives that would have been, and could still be, less regressive and ensure sustainable development.
Topic:
Debt, Political Economy, Finance, Austerity, and Liberalization
Political Geography:
South Asia and Sri Lanka