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111. European Banking Union: An Immediate Tool for Euro Crisis Management and a Long-Term Project for the Single Market

Author:
Giulia Rosa Maria Cavallo
Publication Date:
10-2014
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
After the adoption of a single monetary policy which commits the European Central Bank to maintaining the euro's purchasing power and price stability in the Eurozone, the European Union is facing a new, but equally fundamental challenge: the implementation in a relatively short time of the so-called "Banking Union". Its purpose is twofold: (1) breaking the link between banking and sovereign risk, with the ultimate goal of achieving full protection of EU savers in the event of a crisis; and (2) ensuring uniformity of credit conditions - which are still too fragmented - within the European banking market, to ensure greater EU integration of the financial system. Starting from the Communication in which the European Commission stressed the need for a banking union, this paper intends to explore the complex process towards its establishment by looking at the EU institutional mechanisms and the legal aspects. In particular, the analysis will be based on two building blocks: (1) the Single Supervisory Mechanism, with a single supervisor at the heart of the banking union; and (2) the Single Resolution Mechanism as a new integrated resolution framework and a resolution fund to address the failure of banking institutions. The paper then assesses the next steps for a fully fledged banking union, necessary in order for this new instrument to lay the foundations for a genuine Economic and Monetary Union, thereby fostering financial and economic stability in the euro area and in the EU as a whole.
Topic:
Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
Europe

112. Understanding Differences in Growth Performance in Latin America and Developing Countries between the Asian and Global Financial Crises

Author:
Roberto Alvarez and José De Gregorio
Publication Date:
11-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Latin American performance during the global financial crisis was unprecedented. Many developing and emerging countries successfully weathered the worst crisis since the Great Depression. Was it good luck? Was it good policies? In this paper we compare growth during the Asian and global financial crises and find that a looser monetary policy played an important role in mitigating crisis. We also find that higher private credit, more financial openness, less trade openness, and greater exchange rate intervention worsened economic performance. Our analysis of Latin American countries confirms that effective macroeconomic management was key to good economic performance. Finally, we present evidence from a sample of 31 emerging markets that high terms of trade had a positive impact on resilience.
Topic:
Emerging Markets, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:
Asia and Latin America

113. ECB Policy and Eurozone Fragility: Was De Grauwe Right?

Author:
Ana-Maria Fuertes, Elena Kalotychou, and Orkun Saka
Publication Date:
06-2014
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
Paul De Grauwe ' s fragility hypothesis states that member countries of a monetary union such as the eurozone are highly vulnerable to a self – fulfilling mechanism by which the efforts of investors to avoid losses from default can end up triggering the very default they fear. The authors test this hypothesis by applying an eclectic methodology to a time window around Mario Draghi ' s " whatever it takes " (to keep the eurozone on firm footing) pledge on 26 July 2012 . This pledge was soon followed by the announcement of the Outright Monetary Transactions (OMT) program me (the prospective and conditional purchase by the European Central Bank of sovereign bonds of eurozone countries having difficulty issuing debt) . The principal components of eurozone credit default swap spreads validate this choice of time frame . An event study reveals significant pre – announcement contagion emanating from Spain to Italy, Belgium, France and Austria. Furthermore, time – series regression confirms frequent clusters of large shocks affecting the credit default swap spreads of the four eurozone countries but solely during the pre – announcement period. The findings of this report support the fragility hypothesis for the eurozone and endorse the Outright Monetary Transactions programme.
Topic:
Economics, Foreign Exchange, International Trade and Finance, and Financial Crisis
Political Geography:
Europe, France, Belgium, and Italy

114. Economic forecast summary: July 2014

Publication Date:
07-2014
Content Type:
Policy Brief
Abstract:
The Economist Intelligence Unit has lowered its 2014 forecast for real GDP growth to 2.2% from 2.5%. Employment and consumer confidence are strong but the weather-induced slump in the economy at the start of the year was worse than first thought. We expect real GDP to expand by more S economic outlook than 3% at an annual rate in the final three quarters of 2014 and by 3.2% in 2015. Job growth has averaged 231,000 a month over the past four months, and the unemployment rate of 6.3% is the lowest for five years.
Topic:
Economics, International Trade and Finance, Labor Issues, and Financial Crisis

115. Roaming Charges: Places of Social and Financial Crisis: Dublin 2014

Publication Date:
05-2014
Content Type:
Journal Article
Abstract:
We deal in EJIL with the world we live in – often with its worst and most violent patholo-gies, often with its most promising signs of hope for a better world. But, inevitably, since our vehicle is scholarship, we reify this world. Roaming Charges is designed not just to offer a moment of aesthetic relief, but to remind us of the ultimate subject of our schol-arly reflections: we alternate between photos of places – the world we live in – and photos of people – who we are, the human condition. We eschew the direct programmatic photo-graph: people shot up; the ravages of pollution and all other manner of photojournalism. 'Roaming', 'Charges', and those irritating 'Roaming Charges' – was chosen because of the multiple and at times conflicting meanings, feelings and associations the words, jointly and severally, evoke and which we hope to capture in our choice of photo-graphs. As we roam around the world we aim for images which charge us: please and challenge, even irritate, at the same time. We seek photos which have some ambiguity, are edgy and relate in an indirect way, both to the current circumstance but also to that which is, like human dignity, permanent and enduring.
Topic:
Financial Crisis
Political Geography:
Dublin

116. Is China's Property Market Heading toward Collapse?

Author:
Li-gang Liu
Publication Date:
08-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
China's property market has slowed significantly since the first half of 2014, with sharp declines in sales and a buildup in the inventory of new homes. This sharper than expected downturn—which has affected not only second- and third tier smaller cities but also first-tier megacities such as Beijing, Shanghai, Shenzhen, and Guangzhou—contrasts with last year's buoyant sales and double-digit price surge. Compounded by fears of a default in the shadow banking system and the perception of a highly leveraged Chinese economy, the sudden declines in the property sector are being watched closely. Many commentators believe this could be a turning point for the sector, triggering a hard landing of the Chinese economy and even a financial crisis. Over the last decade, China's property sector has become an important pillar for the country's growth as well as the key source for elevated commodity prices. A property market slump would hurt other sectors, as well as drag down resource-rich economies that rely heavily on China to buy their exports.
Topic:
Economics, Financial Crisis, and Urbanization
Political Geography:
Japan, China, and United Nations

117. The Federal Reserve Engages the World (1970–2000): An Insider's Narrative of the Transition to Managed Floating and Financial Turbulence

Author:
Edwin M. Truman
Publication Date:
08-2014
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper traces the evolution of the Federal Reserve and its engagement with the global economy over the last three decades of the 20th century: 1970 to 2000. The paper examines the Federal Reserve's role in international economic and financial policy and analysis covering four areas: the emergence and taming of the great inflation, developments in US external accounts, foreign exchange analysis and activities, and external financial crises. It concludes that during this period the US central bank emerged to become the closest the world has to a global central bank.
Topic:
Economics, Foreign Exchange, and Financial Crisis
Political Geography:
United States

118. Afghanistan's Looming Fiscal Crisis: What Can Be Done?

Author:
William A. Byrd
Publication Date:
08-2014
Content Type:
Policy Brief
Institution:
United States Institute of Peace
Abstract:
Afghanistan faces a fiscal crisis that reflects worsening domestic revenue shortfalls since 2011, which could reach $1 billion in 2014 compared with the 2011 outlook. The massive theft and fraud at Kabul Bank, failure of mining activities to pay taxes and royalties, and mislabeling of some commercial imports as duty-free are among other contributing factors. Turning the fiscal crisis around will take time, but a legitimate, credible new Afghan government coming into office is essential. Quality leadership and management teams in the Ministry of Finance and the Central Bank will be crucial for success. Urgent measures are needed to turn around poor revenue performance, including strong signals from the top, possible exploitation of limited new revenue sources, and cooperation among different agencies to reduce smuggling and contain revenue leakages. Accelerated recovery of stolen and lost Kabul Bank assets should be a priority, which could provide over $100 million per year of extra fiscal space for the budget. Reforms of the revenue system need to be initiated, including introduction of a value-added tax, and possibly reform of the revenue and customs services. Expenditures will need to be cut. This requires the elimination of unnecessary and wasteful expenditures as well as the meaningful prioritization of programs within a tight resource envelope. Additional international fiscal support will be needed to help stabilize the budget in the short run. Linking aid for the Afghan discretionary budget to increases in domestic revenues and Kabul Bank recoveries would make sense.
Topic:
Debt, Economics, Foreign Aid, and Financial Crisis
Political Geography:
Afghanistan

119. "The Confidence Trap: A History of Democracy in Crisis from World War I to the Present"

Author:
Trygve Throntveit
Publication Date:
09-2014
Content Type:
Journal Article
Institution:
Carnegie Council
Abstract:
“This is what happens when democracies try to take advantage of their historical advantages,” writes David Runciman. “They mess up” (p. 273). In The Confidence Trap, Runciman draws on Alexis de Tocqueville's analysis of nineteenth-century American democracy to assess the strengths and diagnose the ills that have beset mature democratic societies from the early twentieth century to the present. The result is a clear and plausible articulation of democracy's central dilemma, paired with a far less definite treatment of its implications for the conduct of public affairs, either in the past or today.
Topic:
War and Financial Crisis
Political Geography:
America

120. Versailles Redux? Eurozone Competitiveness in a Dynamic Balassa-Samuelson-Penn Framework

Author:
Arvind Subramanian and Kevin Stahler
Publication Date:
11-2014
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Prima facie, competitiveness adjustments in the eurozone, based on unit labor cost developments, appear sensible and in line with what the economic analyst might have predicted and the economic doctor might have ordered. But a broader and arguably better—Balassa-Samuelson-Penn (BSP)—framework for analyzing these adjustments paints a very different picture. Taking advantage of the newly released PPP-based estimates of the International Comparison Program (2011), we identify a causal BSP relationship. We apply this framework to computing more appropriate measures of real competitiveness changes in Europe and other advanced economies in the aftermath of the recent global crises. There has been a deterioration, not improvement, in competitiveness in the periphery countries between 2007 and 2013. Second, the pattern of adjustment within the eurozone has been dramatically perverse, with Germany having improved competitiveness by 9 percent and with Greece's having deteriorated by 9 percent. Third, real competitiveness changes are strongly correlated with nominal exchange rate changes, which suggests the importance of having a flexible (and preferably independent) currency for effecting external adjustments. Fourth, internal devaluation—defined as real competitiveness improvements in excess of nominal exchange rate changes—is possible but seems limited in scope and magnitude. Our results are robust to adjusting the BSP framework to take account of the special circumstances of countries experiencing unemployment. Even if we ignore the BSP effect, the broad pattern of limited and lopsided adjustment in the eurozone remains.
Topic:
Economics, Industrial Policy, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:
Europe