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61. Germany’s Debt Brake and Europe’s Fiscal Stance after COVID-19

Author:
Shahin Vallée, Jérémie Cohen-Setton, and Dominik Buhl
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
German Council on Foreign Relations (DGAP)
Abstract:
Germany’s plan to return to its debt brake creates a serious risk of premature fiscal tightening. Given that the fiscal divide between Europe and the US will widen sharply in 2021, a hasty return to European and German fiscal rules would stifle recovery and undermine efforts to rebuild transatlantic ties in trade and macroeconomic cooperation. This paper proposes several practical options to attenuate the fiscal drag associated with a return to the debt brake and calls for a broad debate on its reform.
Topic:
Debt, European Union, Finance, Transatlantic Relations, and COVID-19
Political Geography:
Europe, Germany, and United States of America

62. Containing the Pandemic Public Debt

Author:
Committee for Economic Development of the Conference Board
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
The Conference Board
Abstract:
In early 2020, the COVID-19 pandemic presented the entire world with its worst public health threat in at least a century. The precise seriousness of the pandemic, of course, could not be known at the outset; and in fact, the pandemic is not yet vanquished as this statement is written. The extent of the damage the virus and its mutations will ultimately cause is not yet fully known. But the near-miraculous efforts to develop vaccines, contain the infection, and treat the infected provide much-needed hope that a return to “normal” is not out of reach. The pandemic had economic consequences as well. And like the public health impact, the shock to the economy was large but impossible to assess accurately at its outset. And like the damage to public health, the economic fallout is still impossible to assess today with complete accuracy. For the first time in 100 years, stay-at-home orders to protect the public health spurred an economic downturn and dramatic job losses—leaving a wide swath of businesses in hospitality, travel, leisure, dining, and retail nearly shut down, with entire occupations, such as personal service workers, facing extended layoffs or even permanent job loss. The fates of these businesses and workers are unpredictable, depending on the uncertain course of the pandemic itself. Another similarity between the public health and the economic threats is that prudent public policy required strong and immediate responses. With the ultimate extent of the damage unknown but potentially catastrophic, executive and congressional policymakers deemed it essential that government react swiftly and robustly. Policymakers and commentators repeated often that the nation should err on the side of action—that it would be better to do too much rather than too little.
Topic:
Debt, Economy, Public Health, Pandemic, and COVID-19
Political Geography:
North America and United States of America

63. The Challenges of Redressing Violations of Economic and Social Rights in the Aftermath of the Eurozone Sovereign Debt Crisis

Author:
Giulia Ciliberto
Publication Date:
06-2021
Content Type:
Journal Article
Journal:
The Goettingen Journal of International Law
Institution:
The Goettingen Journal of International Law
Abstract:
The Eurozone sovereign debt crisis represented an occasion to assess whether the international, European Union, and national systems provide adequate remedies for violation of socio-economic rights caused by austerity measures. Victims of these violations tried to obtain a remedy by lodging complaints before national judicial organs, the Court of Justice of the European Union, international human rights bodies (such the UN Committee on Economic, Social and Cultural Rights, the ILO Committee on Freedom of Association and the European Committee on Social Rights), and the European Court of Human Rights. This article addresses whether one (or more) of these venues indicted adequate remedies of violations of socio-economic rights and whether these mechanisms could have adopted a different (and more human rights- oriented) adjudicative approach with the view of enhancing the effectiveness of socio-economic rights enshrined in international treaties. The paper assumes that the adequacy of the relief depends on two elements. The first is the collective nature of socio-economic rights, which requires structural or systemic remedies rather than individual ones. The second is the need to preserve States’ economic soundness in order to allow Countries to satisfy their international obligations, namely securing a minimum essential level of socio- economic rights and their progressive realization. Against these assumptions, remedies should benefit the victimized class as a whole, alongside avoiding major distributional or unintended consequences to the detriment of public finances. The investigation focuses on the case law and pronouncements concerning Greece, Portugal, and Spain. The paper reaches the conclusion that constitutional review of austerity measures is the most adequate and effective venue to address such sensitive matters. This is especially true where constitutional courts rely on international conventions protecting socio-economic rights as per se parameters of constitutionality or through consistent interpretation – viz. by construing the national bill of rights in line with treaty-based socio-economic rights.
Topic:
Debt, European Union, Economic Cooperation, Socioeconomics, and Economic Rights
Political Geography:
Greece, Spain, and Portugal

64. The Great Debt Divergence and its Implications for the Covid-19 Crisis: Mapping Corporate Leverage as Power

Author:
Joseph Baines and Sandy Brian Hager
Publication Date:
01-2021
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
The COVID-19 pandemic has amplified longstanding concerns about mounting levels of corporate debt in the United States. This article places the current conjuncture in its historical context, analysing corporate indebtedness against the backdrop of increasing corporate concentration. Theorising leverage as a form of power, we find that the leverage of large non-financial firms increased in recent decades, while their debt servicing burdens decreased. At the same time, smaller firms experienced sharp deleveraging alongside increasing debt servicing costs. Crucially, smaller corporations also registered severe losses over this period, while large corporations remained profitable, and in fact doubled their net profit margins from the early-1990s to the present. Taken together, the results from our mapping exercise uncover a series of dramatic changes in the financial fortunes of large versus smaller firms in recent decades, a phenomenon we refer to as the great debt divergence. We explain this divergence with reference to the dynamics of power in the era of µshareholder capitalism, and we argue that the US political economy in the post-COVID 19 world is likely to resemble the pre-COVID 19 one, only with more market turmoil, more concentration, more inequality, and even less investment.
Topic:
Debt, COVID-19, Corporations, Power, Leverage, and Shareholder Value
Political Geography:
North America and United States of America

65. Fiscal Policy as Credit Policy: Reassessing the Fiscal Spending vs. Private Debt Trade-Off

Author:
Etienne Lepers
Publication Date:
01-2021
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
This paper revisits the dominant narrative that explains the substantial household credit boom as a substitute to fiscal redistribution, i.e. the “substitution” hypothesis, according to which fiscally-constrained governments substituted public safety nets by private credit. I argue instead that the credit and welfare state constituencies may not necessarily be the same and that far from fiscally constrained, governments have been actively using “fiscal policy as credit policy”. I provide two sets of empirical evidence for such account: First, I find a positive within-country relationship between household debt and fiscal spending. Second, compiling a unique dataset of 550 fiscal subsidies adjustments in 50 countries since 1980, I show that fiscal and tax subsidies have been instrumental in driving household credit. These dynamics have distributional and financial stability implications as such tax subsidies typically favour higher income households and household debt booms have proven more dangerous than corporate ones.
Topic:
Debt, Financial Crisis, Welfare, Financialisation, Subsidies, Household, and Public Finance
Political Geography:
Global Focus

66. How China lends: A rare look into 100 debt contracts with foreign governments

Author:
Anna Gelpern, Sebastian Horn, Scott Morris, Brad Parks, and Christoph Trebesch
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
China is the world’s largest official creditor, but basic facts are lacking about the terms and conditions of its lending. Very few contracts between Chinese lenders and their government borrowers have ever been published or studied. This paper is the first systematic analysis of the legal terms of China’s foreign lending. The authors collect and analyze 100 contracts between Chinese state-owned entities and government borrowers in 24 developing countries in Africa, Asia, Eastern Europe, Latin America, and Oceania, and compare them with those of other bilateral, multilateral, and commercial creditors. Three main insights emerge. First, the Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. Second, Chinese lenders seek advantage over other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises to keep the debt out of collective restructuring (“no Paris Club” clauses). Third, cancellation, acceleration, and stabilization clauses in Chinese contracts potentially allow the lenders to influence debtors’ domestic and foreign policies. Even if these terms were unenforceable in court, the mix of confidentiality, seniority, and policy influence could limit the sovereign debtor’s crisis management options and complicate debt renegotiation. Overall, the contracts use creative design to manage credit risks and overcome enforcement hurdles, presenting China as a muscular and commercially savvy lender to the developing world.
Topic:
Foreign Policy, Debt, Government, and Banking
Political Geography:
China and Asia

67. Improving China's participation in resolving developing-country debt problems

Author:
Martin Chorzempa and Adnan Mazarei
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The COVID-19 shock has exacerbated the struggles of many emerging-market and developing economies (EMDEs) to repay their external debt. One of the most urgent challenges relates to debt owed to China, whose lending spree under its Belt and Road Initiative and other programs has played an outsized role in what amounts to a crisis for many countries. The scope of the problem is striking. China is owed more than $100 billion, or 57 percent of all debt owed to official creditors by the countries that need help the most. China is not a member of the Paris Club of official creditors, which coordinates, within a multilateral framework, the resolution of general sovereign illiquidity or unsustainable external debt of EMDEs. There is an urgent need to put in place more effective, long-term solutions to help durably lower the risks of prolonged debt difficulties in EMDEs. These problems could be partly addressed by creating creditor committees to coordinate debt relief with China. The Group of Twenty (G20) has taken some steps to include creditor committees in the context of the Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative (DSSI), but only for low-income countries that qualify for the DSSI and only for official creditors. To better address debt distress, it needs to extend the approach, especially to middle-income debtor countries.
Topic:
Debt, Development, Emerging Markets, and G20
Political Geography:
China and Asia

68. Sovereign Debt in the 21st Century

Author:
Kris James Mitchener and Christoph Trebesch
Publication Date:
08-2021
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
How will sovereign debt markets evolve in the 21st century? We survey how the literature has responded to the eurozone debt crisis, placing “lessons learned” in historical perspective. The crisis featured: (i) the return of debt problems to advanced economies; (ii) a bank-sovereign “doom-loop” and the propagation of sovereign risk to households and firms; (iii) roll-over problems and self-fulfilling crisis dynamics; (iv) severe debt distress without outright sovereign defaults; (v) large-scale sovereign bailouts from abroad; and (vi) creditor threats to litigate and hold out in a debt restructuring. Many of these characteristics were already present in historical debt crises and are likely to remain relevant in the future. Looking forward, our survey points to a growing role of sovereign-bank linkages, legal risks, domestic debt and default, and of official creditors, due to new lenders such as China as well as the increasing dominance of central banks in global debt markets. Questions of debt sustainability and default will remain acute in both developing and advanced economies.
Topic:
Debt, Finance, Banking, and Sovereign Debt
Political Geography:
Global Focus

69. Financing Fiscal Support under Alternative Policy Frameworks

Author:
Zico Dasgupta
Publication Date:
08-2021
Content Type:
Working Paper
Institution:
Centre for Sustainable Employment, Azim Premji University
Abstract:
This paper perceives fiscal support as a policy instrument and examines alternative policy frameworks that can simultaneously stabilize labour income, output and debt-GDP ratio. The need to stabilize labour income over and above output follows from the possibility of income growth rate of labour falling below output growth rate. This paper points out the limitations of sound finance regime in meeting these targets and proposes an alternative policy framework which is termed as Debt-Neutral Functional Finance with Fiscal Support (DNFS). The DNFS framework highlights the role of development financial institutions and the need for a floor level of corporate tax-GDP ratio.
Topic:
Debt, GDP, Fiscal Policy, and Income
Political Geography:
Global Focus

70. Comparing the Perceptions of Indonesians and Malaysians toward the China’s Belt and Road Initiative: Facts and Trends

Author:
Yasmi Adriansyah and Yin Shi Wu
Publication Date:
05-2020
Content Type:
Journal Article
Journal:
Revista UNISCI/UNISCI Journal
Institution:
Unidad de investigación sobre seguridad y cooperación (UNISCI)
Abstract:
This article examines public perceptions in Indonesia and Malaysia regarding the China’s Belt and Road Initiative (BRI). In order to get a comprehensive picture of the subject matter, the article applies three perspectives, namely International Politics, Economy and Debt Trap, and Public Acceptance. The attachments of Indonesia (under Joko Widodo administration) and Malaysia (under Najib Razak administration) are analyzed, mainly by observing the perceptions of the political elites and opinion polls in these most populous Muslim countries. The findings show that both governments in the two countries had exhibited high inclination toward the BRI. Interestingly, their public show different attitudes and many people are against or at least critical of these policies. It therefore suggests that the pro-BRI policies of the governemnts must be managed with high care in order to balance the different interrests with the popular interests.
Topic:
Foreign Policy, Debt, and Belt and Road Initiative (BRI)
Political Geography:
China, Indonesia, and Malaysia