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112. Renewed Financial Supervision in Europe – Final or transitory?
- Author:
- Stijn Verhelst
- Publication Date:
- 03-2011
- Content Type:
- Working Paper
- Institution:
- EGMONT - The Royal Institute for International Relations
- Abstract:
- In order to obtain financial sector stability, adequate financial regulation and supervision are paramount. Despite their crucial role, both failed to prevent or at least mitigate the financial crisis. While financial regulation strives to impose a set of rules that ensure a safe and resilient financial sector, it has proven to contain too many gaps and loopholes.
- Topic:
- Debt, Economics, Markets, Monetary Policy, Financial Crisis, and Governance
- Political Geography:
- Europe
113. External versus Domestic Debt in the Euro Crisis
- Author:
- Daniel Gros
- Publication Date:
- 05-2011
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies
- Abstract:
- As EU leaders muddle through the eurozone crisis, the debate about its root causes continues. CEPS Director Daniel Gros argues in this Policy Brief that the debate is important if we are to understand how to prevent future crises. In his view, external debt is the key to the turmoil in European economies and that the focus on total public debt is therefore misleading.
- Topic:
- Debt, Economics, and Financial Crisis
- Political Geography:
- Europe
114. The EU's Response to the Financial Crisis: A mid-term review
- Author:
- Karel Lannoo
- Publication Date:
- 04-2011
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies
- Abstract:
- Two years after the London G-20, CEPS Chief Executive Karel Lannoo finds that the EU is well advanced in delivering on the commitments made for the 2013 target date. Important steps have been taken on the institutional side, and regulatory changes are moving ahead. On some issues, in fact, such as remuneration, the EU has made even greater headway than the US. But certain key sensitive matters remain, such as bank resolution or structural changes.
- Topic:
- Debt, Economics, Global Recession, Monetary Policy, and Financial Crisis
- Political Geography:
- United States, Europe, and London
115. Restoring financial stability in the euro area
- Author:
- Christian Kopf
- Publication Date:
- 03-2011
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies
- Abstract:
- The pricing of sovereign credit risk is a necessary component of the financial architecture of the European Monetary Union. However, unnecessarily high and volatile risk premia on government bonds are currently preventing effective financial intermediation within the euro area, thereby inhibiting its economic recovery. Several proposals have been made on how these risk premia should be brought down, namely i) permanent pooling of funding through joint bond issuance, ii) temporary liquidity assistance through multilateral funds, iii) debt buybacks using multilateral funds, and iv) debt restructuring.
- Topic:
- Debt, Economics, Global Recession, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe
116. On the Tasks of the European Stability Mechanism
- Author:
- Stefano Micossi, Fabrizia Peirce, and Jacopo Carmassi
- Publication Date:
- 03-2011
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies
- Abstract:
- In recent weeks pressures on the euro and eurozone sovereign debtors have subsided. Buoyant growth in the global economy, increasingly benefiting also the European economy, has of course played an important role in calming financial markets. But even more important has been the perception that France and Germany are again working constructively for a strong economic Europe. More broadly, the acute turbulence in financial markets since the spring of 2010 may have finally convinced our political leaders, notably including the German political establishment, that the benefits of a stable currency far outweigh the costs that may have to be borne to make it work properly. The euro will only be trusted if the member states effectively coordinate their economic policies not only to ensure fiscal stability, but also to eliminate persistent divergences in productivity leading to unsustainable imbalances between national savings and investment (Schäuble, 2011).
- Topic:
- Security, Economics, Regional Cooperation, Monetary Policy, Financial Crisis, and Governance
- Political Geography:
- Europe, France, and Germany
117. Debt reduction without default?
- Author:
- Daniel Gros and Thomas Mayer
- Publication Date:
- 02-2011
- Content Type:
- Policy Brief
- Institution:
- Centre for European Policy Studies
- Abstract:
- This paper proposes a two-step, market-based approach to debt reduction: · Step 1.The European Financial Stability Facility (EFSF) would offer holders of debt of the countries with an EFSF programme (probably Greece, Ireland and Portugal = GIP) an exchange into EFSF paper at the market price prior to their entry into an EFSF-funded programme. The offer would be valid for 90 days. Banks would be forced in the context of the ongoing stress tests to write down even their banking book and thus would have an incentive to accept the offer. · Step 2. Once the EFSF had acquired most of the GIP debt, it would assess debt sustainability country by country. a) If the market price discount at which it acquired the bonds is enough to ensure sustainability, the EFSF will write down the nominal value of its claims to this amount, provided the country agrees to additional adjustment efforts (and, in some cases, asset sales). b) If under a central scenario this discount is not enough to ensure sustainability, the EFSF might agree on a lower interest rate, but with GDP warrants to participate in the upside.
- Topic:
- Debt, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe
118. Lessons from the East European Financial Crisis, 2008-10
- Author:
- Anders Åslund
- Publication Date:
- 06-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- In the fall of 2008, Central and Eastern Europe became a flashpoint in the global financial crisis. The ten new eastern members of the European Union were in a state of severe overheating in all regards. Inflation surged everywhere and to double digits in Bulgaria, Estonia, Latvia, and Lithuania. Wages and real estate prices skyrocketed, rendering these countries ever less competitive, which further undermined their current account balance. Output plunged and unemployment soared.
- Topic:
- Economics, Global Recession, and Financial Crisis
- Political Geography:
- Europe, Lithuania, Estonia, Bulgaria, and Latvia
119. Balancing growth and stability in EU financial reform
- Publication Date:
- 05-2011
- Content Type:
- Working Paper
- Institution:
- Oxford Economics
- Abstract:
- The financial crisis has forced a reappraisal of the regulatory architecture, globally and in the EU and its member states. Around the world, policymakers are proposing significant changes to rules governing the financial sector, with the goal of making the financial system more resilient. Given the large and visible costs of financial instability for Europe, it is natural for European policymakers to make the avoidance of financial crises a high priority. But it is also important to recognise that regulation carries a range of costs that can dilute the economic benefits of a competitive and dynamic financial services sector. The academic literature has robustly established that financial development is not only the consequence of economic growth but also a driver. If the EU is to achieve the ambitious goals for unleashing private enterprise and creating jobs set out within the Europe 2020 agenda, then it cannot afford to overlook the role of the financial system in fostering innovation and growth. As supervisory authorities consider a broad set of proposals to strengthen the regulatory infrastructure, a n important quest ion that arises is how to assess the aggregate impact of these various measures. Although each may look sensible in isolation, they could still impose a larger - than - expected burden on the financial system when take n in the aggregate. The focus of policy reforms should be on forcing financial institutions to internalise the social costs of their risk - taking decisions rather than suppressing financial innovation. Credible policies to allow the failure of financial institutions would encourage market monitoring of risk - taking, reducing the need for additional prudential regulation and minimising costs to the taxpayer in the event of bankruptcy. Policymakers should aim to put in place an objective, sustainable and flexible regulatory regime, as the design of the regulatory framework will play a significant role in the future development of both the financial industry and the wider economy. International consistency in the regulatory reform agenda is also important so as not to risk fragmentation of global capital markets, which bring significant economic benefits to companies and consumers alike. The economic and social purpose of financial markets is the efficient allocation of capital, and the regulatory agenda must be framed around this goal. At a time when the European economy is struggling to recover lost ground, changes to the regulatory regime should not unduly restrict the potential of the financial sector to contribute to the continents future prosperity.
- Topic:
- Development, Economics, Globalization, International Trade and Finance, and Financial Crisis
- Political Geography:
- Europe
120. Governance of a Fragile Eurozone
- Author:
- Paul De Grauwe
- Publication Date:
- 05-2011
- Content Type:
- Working Paper
- Institution:
- Centre for European Policy Studies
- Abstract:
- When entering a monetary union, member countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries' sovereigns into default. In this sense, the status of member countries of a monetary union is downgraded to that of an emerging economy. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise.
- Topic:
- Debt, Markets, Regional Cooperation, and Financial Crisis
- Political Geography:
- Europe