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221. Spain's fiscal targets should be eased

Publication Date:
01-2012
Content Type:
Policy Brief
Institution:
Oxford Economics
Abstract:
The Spanish government has announced that the fiscal deficit for 2011 may be even worse than expected, perhaps even exceeding 8% of GDP. In response to this overshoot, the authorities have so far announced additional spending cuts and tax rises amounting to €15bn. But fiscal tightening will have to be even more severe if the government wants to meet its 4.4% of GDP deficit target for 2012.
Topic:
Debt, Economics, Government, Monetary Policy, and Financial Crisis
Political Geography:
Spain

222. The Fed moves to provide more transparency

Publication Date:
01-2012
Content Type:
Policy Brief
Institution:
Oxford Economics
Abstract:
The Federal Reserve has taken additional actions to make its monetary policy more transparent to markets. The latest moves include the release of FOMC members' expectatins for the federal funds rate at the end of each of the next few years and in the longer term. Another is an statement of strategy for meeting its dual mandates of price stability and full employment. Although the statement included an explicit target for inflation but not for unemployment, the equal weights given to each goal afford the Fed more discretion in setting monetary policy.
Topic:
Economics, Government, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:
United States

223. Fixing Mortgage Finance: What to Do with the Federal Housing Administration?

Author:
Mark A. Calabria
Publication Date:
02-2012
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
While Fannie Mae, Freddie Mac, and private subprime lenders have deservedly garnered the bulk of attention and blame for the mortgage crisis, other federal programs also distort our mortgage market and put taxpayers at risk of having to finance massive financial bailouts. The most prominent of these risky agencies is the Federal Housing Administration (FHA).
Topic:
Debt, Economics, Government, and Financial Crisis
Political Geography:
United States

224. Still a Better Deal: Private Investment vs. Social Security

Author:
Michael Tanner
Publication Date:
02-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Opponents of allowing younger workers to privately invest a portion of their Social Security taxes through personal accounts have long pointed to the supposed riskiness of private investment. The volatility of private capital markets over the past several years, and especially recent declines in the stock market, have seemed to bolster their argument.
Topic:
Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
United States

225. Constructing a German Europe? Germany's Europe Debate Revisited

Author:
Timo Behr and Niklas Helwig
Publication Date:
02-2012
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
Germany's ambiguous role during the eurozone crisis has stoked fears that a more self-confident and dynamic Germany is threatening the political independence and economic well-being of its neighbours and will lead to a “German Europe”. German weakness, not power, is the main challenge to EU integration. In order to build a supranational EU and a “European Germany”, Germans will have to overhaul their Cold War institutions and traditions that have become a brake on EU integration. Germany's political elite continues to favour a federalist vision for the EU, but faces a somewhat more sceptical public as well as strong domestic veto players, such as the Federal Constitutional Court, which limit their pro-integrationist tendency. While Germany continues to support the use of the “Community method”, Angela Merkel has increasingly resorted to the “Union method” that places function over form and prioritizes pragmatic problem-solving to address the current crisis. Germany's uncompromising attitude towards the eurozone crisis and its sometimes erratic foreign policy are the product of its deeply embedded stability culture and instinctive pacifism, rather than a sign of growing global ambitions. European partners will have to help Germany in its indispensable leadership role by jointly formulating a vision for the European integration project and by assisting Germany in adapting its political institutions and culture.
Topic:
Cold War, Economics, Regional Cooperation, and Financial Crisis
Political Geography:
Europe and Germany

226. Stepping up Growth Policies

Author:
Stefano Micossi
Publication Date:
03-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The eurozone is in recession and will show negative growth in 2012; GDP will fall sharply in Greece and Portugal, and there is substantial risk that Spain and Italy will follow suit (the Commission's recent forecasts seem overly optimistic and complacent; the IMF is more downbeat). But fiscal policies are uniformly restrictive throughout the eurozone and much of the Union, and the hopes that fiscal consolidation could spur growth by improving household and business confidence are not materialising. In reality, domestic demand has been hit too hard by fiscal consolidation, and investment throughout the Union remains well below pre- crisis levels. Credit is tight due to the deteriorating quality of borrowers and the ongoing deleveraging in banking.
Topic:
Economics, Foreign Exchange, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
Europe and Greece

227. Mispricing of Sovereign Risk and Multiple Equilibria in the Eurozone

Author:
Paul De Grauwe and Yuemei Ji
Publication Date:
01-2012
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper finds evidence that a significant part of the surge in the spreads of the PIGS countries (Portugal, Ireland, Greece and Spain) in the eurozone during 2010-11 was disconnected from underlying increases in the debt-to-GDP ratios, and was the result of negative market sentiments that became very strong since the end of 2010.
Topic:
Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe, Greece, Spain, Portugal, and Ireland

228. Gold Exchange Standard in its 40th Year of Abolition: Jacques Rueff Re-Visited

Author:
Onur Bayramoğlu
Publication Date:
03-2012
Content Type:
Policy Brief
Institution:
Global Political Trends Center
Abstract:
While the post-war international monetary system that evolved under the leadership of the U.S. dollar has secured credit abundance – and hence contributed to global growth – the system has also revealed its deficiencies already by 1950's. In contrary to the 1930's when the world's main problem was chronic deflation; two decades later, the problem has become chronic inflation and fiscal deficits. Since then many blamed the indiscipline of the Keynesian school of thought and the inability of the U.S. dollar to become a global “public good” by being a stable international currency. In this Policy Brief, I overview the many aspects of the post-war international monetary system through the lens of the post-war French economist, Jacques Rueff, and question the applicability of his longproposed gold standard in today's highly integrated and speculative money markets.
Topic:
Economics, International Trade and Finance, Markets, Monetary Policy, and Financial Crisis
Political Geography:
United States

229. Credit at Times of Stress: Latin American Lessons from the Global Financial Crisis

Author:
Liliana Rojas-Suarez and Carlos Montoro
Publication Date:
02-2012
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The financial systems in emerging market economies during the 2008–09 global financial crisis performed much better than in previous crisis episodes, albeit with significant differences across regions. For example, real credit growth in Asia and Latin America was less affected than in Central and Eastern Europe. This paper identifies the factors at both the country and the bank levels that contributed to the behavior of real credit growth in Latin America during the global financial crisis. The resilience of real credit during the crisis was highly related to policies, measures and reforms implemented in the pre-crisis period. In particular, we find that the best explanatory variables were those that gauged the economy's capacity to withstand an external financial shock. Key were balance sheet measures such as the economy's overall currency mismatches and external debt ratios (measuring either total debt or short-term debt). The quality of pre-crisis credit growth mattered as much as its rate of expansion. Credit expansions that preserved healthy balance sheet measures (the “quality” dimension) proved to be more sustainable. Variables signalling the capacity to set countercyclical monetary and fiscal policies during the crisis were also important determinants. Moreover, financial soundness characteristics of Latin American banks, such as capitalization, liquidity and bank efficiency, also played a role in explaining the dynamics of real credit during the crisis. We also found that foreign banks and banks which had expanded credit growth more before the crisis were also those that cut credit most. The methodology used in this paper includes the construction of indicators of resilience of real credit growth to adverse external shocks in a large number of emerging markets, not just in Latin America. As additional data become available, these indicators could be part of a set of analytical tools to assess how emerging market economies are preparing themselves to cope with the adverse effects of global financial turbulence on real credit growth.
Topic:
Debt, Economics, Emerging Markets, Globalization, and Financial Crisis
Political Geography:
Europe, Asia, and Latin America

230. Interest Rate Shock and Sustainability of Italy's Sovereign Debt

Author:
William R. Cline
Publication Date:
02-2012
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Contagion from Greece, together with domestic political uncertainty in Italy, caused interest rates on Italian sovereign debt to spike in the second half of 2011. As shown in figure 1, the risk spread above German bunds for 10-year Italian government bonds rose from 200 basis points in early July 2011, to a range of 300 to 400 basis points after the July 21 Greek package with its new emphasis on private sector involvement. There was a second surge to the 400 to 500 basis point range in November through January, following the October 27 Greek package that insisted on a 50 percent reduction in private sector claims.
Topic:
Debt, Economics, and Financial Crisis
Political Geography:
Europe, Germany, and Italy