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201. Adjustment Difficulties in the GIPSY Club

Author:
Daniel Gros
Publication Date:
03-2010
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper describes the key economic variables and mechanisms that will determine the adjustment process in those euro area countries now under financial market pressure. (Greece, Ireland, Portugal, Spain and Italy = GIPSY) The key finding is that the adjustment will be particularly difficult for Greece (and Portugal) because these are two relatively closed economies with low savings rates. Both of these countries are facing a solvency problem because they combine high debt levels with low growth and high interest rates. Fiscal and external adjustment is thus required for sustainability, not just to satisfy the Stability Pact. By contrast, Ireland and Spain face more of a liquidity than a solvency problem. Italy seems to have a much better starting position on all accounts. Fiscal adjustment alone will not be sufficient to ensure sustainability. Without significant reductions in labour costs, these economies will face years of stagnation at best. Especially in the case of Greece, it is imperative that the cuts in public sector wages are transmitted to the entire economy in order to restore competitiveness, and thus ensure that export growth can become a vital safety valve. Without an adjustment of wages in the private sector, the adjustment will become so difficult that failure cannot be excluded.
Topic:
Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe, Greece, Spain, Italy, Portugal, and Ireland

202. Myths about Budget Deficits

Author:
John H. Makin
Publication Date:
02-2010
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
February always brings with it the president's proposals for taxing and spending in the coming fiscal year. The president's budget proposals are accompanied by congressional and administration estimates of the path deficits and government debt are expected to take in coming years. Last year, those projections, especially a three-year string of actual and projected deficits over a trillion dollars from 2009 through 2011, excited widespread comment and handwringing about runaway deficits and their allegedly damaging effects in the form of lower growth, higher inflation, and higher interest rates.
Topic:
Debt, Economics, Political Economy, and Politics
Political Geography:
United States

203. Lessons from the Asian Monetary Fund for the European Monetary Fund

Author:
Yonghyup Oh
Publication Date:
04-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The euro area is facing a challenge with Greece in danger of falling into sovereign default and some of its other members, the so-called 'GIPSY' nations, finding themselves in serious financial distress. Creation of a European Monetary Fund to deal more effectively with this type of situation is gaining support. This paper draws lessons from the Asian experience that might be applied to the current European development.
Topic:
Debt, Economics, International Trade and Finance, and Monetary Policy
Political Geography:
Europe

204. What now for the 'peripheral' Eurozone countries?

Publication Date:
05-2010
Content Type:
Working Paper
Institution:
Oxford Economics
Abstract:
Over the weekend the EU put together a large-scale package worth up to €720 billion aimed at stabilising all the 'peripheral' Eurozone countries, in the face of mounting contagion risks. This came on top of an earlier financial support package for Greece worth €110 billion. The latest move has brought some relief to bond markets, but major challenges remain. Investors remain concerned about the capacity of Greece to stick to the immense fiscal adjustment needed in the face of a very deep recess ion and mounting social unrest. With the debt/GDP ratio set to keep rising to almost 150% in the next few years, concerns remain that some kind of debt restructuring or default cannot be avoided. For the other peripherals, too, the outlook remains bleak – while the immediate threat of a collapse in their debt markets has been averted, years of fiscal austerity and slow growth remain ahead.
Topic:
Debt, International Political Economy, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:
Greece

205. Both a Borrower and Lender Be Can Islamic Microfinance Bring Peace to Palestine?

Author:
Kenneth E. Barden
Publication Date:
05-2010
Content Type:
Journal Article
Journal:
World Policy Journal
Institution:
World Policy Institute
Abstract:
RAMALLAH, Palestine—Mahmod Ismail Oda is a farmer, raising a variety of leafy vegetables in a small greenhouse in the northern part of the West Bank outside of Jenin, some 25 kilometers from the border with Israel. The land here is rocky and hilly and a great amount of effort is required to turn this land to productive use. Two years ago, Oda needed money to obtain some plastic housing to protect his vegetables from the elements. Unfortunately, the $5,000 he needed was not an amount that commercial banks were particularly interested in servicing, nor did Oda possess the collateral typically required in conventional loan arrangements. Oda, a devout Muslim, is in his mid-40s and still full of energy. But, as the father of a young family, he feared being encumbered by a debt he could not readily repay. Oda found his answer in a new model of financing, one that blends micro-loans with respect for Islamic law, or shariah. In stepped Reef Finance, just one of a number of nascent institutions that may play a major role in bringing a level of prosperity, even peace, to the rural communities of the West Bank.
Topic:
Debt

206. Debt and Systemic Risk: The Contribution of Fiscal and Monetary Policy

Author:
Benn Steil
Publication Date:
06-2010
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The story of the financial crisis will be retold endlessly as one of widespread corruption and incompetence, enabled by a policy agenda fixated on deregulation. But to accept this story, one would have to believe that if the marketplace had been confined to ethical and informed individuals, and if their activities had been carefully scrutinized by diligent regulators, we would have avoided a major financial boom and bust.
Topic:
Debt

207. Managing Credit Booms and Busts: A Pigouvian Taxation Approach

Author:
Olivier Jeanne and Anton Korinek
Publication Date:
09-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
We study a dynamic model in which the interaction between debt accumulation and asset prices magnifies credit booms and busts. We find that borrowers do not internalize these feedback effects and therefore suffer from excessively large booms and busts in both credit flows and asset prices. We show that a Pigouvian tax on borrowing may induce borrowers to internalize these externalities and increase welfare. We calibrate the model with reference to (1) the US small and medium-sized enterprise sector and (2) the household sector and find the optimal tax to be countercy - clical in both cases, dropping to zero in busts and rising to approximately half a percentage point of the amount of debt outstanding during booms.
Topic:
Debt, Economics, Global Recession, and Financial Crisis
Political Geography:
United States

208. Will It Be Brussels, Berlin, or Financial Markets that Check Moral Hazard in Europe's Bailout Union? Most Likely the Latter!

Author:
Jacob Funk Kirkegaard
Publication Date:
10-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
So far so good for the European Union in preventing the Greek sovereign debt crisis from spiraling out of control in the short term. But with Greece in May 2010 requiring an unprecedented bailout from the European Union/IMF to avoid immediate default and 25 of the European Union's 27 member states currently subject to an “excessive deficit procedure” (European Commission 2010i), it remains evident that the European Union's existing fiscal surveillance framework patently failed both before and during the Great Recession and that Europe's leaders must head back to the drawing board for a required long term reform of the EU fiscal policy and surveillance framework.
Topic:
Debt, Economics, and Financial Crisis
Political Geography:
Europe and Greece

209. The Sovereign Debt Problem

Author:
George Soros
Publication Date:
10-2010
Content Type:
Video
Institution:
Columbia University World Leaders Forum
Abstract:
The Sovereign Debt Problem
Topic:
Debt, Economics, Emerging Markets, Markets, and Financial Crisis

210. Sudan Debt Dynamics: Status Quo, Southern Secession, Debt Division, and Oil–A Financial Framework for the Future

Author:
Benjamin Leo
Publication Date:
12-2010
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The people of Southern Sudan are scheduled to vote in a referendum on whether to remain unified with the central government in Khartoum or break away to form a new, fully independent country. While the Khartoum government remains committed to a unified Sudan, all indications suggest that the Southern Sudanese will vote for secession by an overwhelming majority. Khartoum's willingness to accept the potential losses remains unclear. Many suspect that its ultimate actions will depend, at least in part, upon the resolution of key outstanding issues, such as oil and debt. This paper contributes to ongoing discussions about the role of Sudan's $35 billion in external debt obligations – both for a unified Sudan and a possible Southern secession. First, it examines Sudan's existing debt dynamics and the potential eligibility for traditional debt relief and multilateral debt relief initiatives. Second, it outlines potential options for dividing Sudan's external debt obligations in the event of a Southern secession. Third, it estimates external indebtedness ratios under each debt division scenario and the potential relevance of traditional debt relief treatments. Lastly, the paper provides an indicative roadmap for clearing Sudan's loan arrears of $30 billion and potentially securing comprehensive debt relief in the future.
Topic:
Civil War, Debt, Ethnic Conflict, and Territorial Disputes
Political Geography:
Africa and Sudan