The Greek Crisis: Causes and Implications

This paper presents and critically discusses the origins and causes of the Greek fiscal crisis and its implications for the euro currency as well as the SEE economies. In the aftermath of the 2007-2009 financial crisis the enormous increase in sovereign debt has emerged as an important negative outcome, since public debt was dramatically increased in an effort by the US and the European governments to reduce the accumulated growth of private debt in the years preceding the recent financial turmoil. Although Greece is the country member of the eurozone that has been in the middle of this ongoing debt crisis, since November 2009 when it was made clear that its budget deficit and mainly its public debt were not sustainable, Greece’s fiscal crisis is not directly linked to the 2007 US subprime mortgage loan market crisis. As a result of this negative downturn the Greek government happily accepted a rescue plan of 110 billion euros designed and financed by the European Union and the IMF. A lengthy austerity programme and a fiscal consolidation plan have been put forward and are to be implemented in the next three years.Sovereign risk, Debt crisis, Bonds market, Expectations, Fiscal guarantees

Cointegration, uncovered interest parity and the term structure of interest rates : some International evidence

This paper addresses the issue of the empirical investigation of monetary policy independence as this is manifested in the inter–relationships between domestic and foreign money market interest rates. Instead of following an ad– hoc econometric approach, we have imposed a specific economic structure on the proposed model by establishing a link of the yield curves of two different countries through the Uncovered Interest Rate Parity, UIP. The expectations hypothesis of the term structure and the UIP imply certain overidentifying restrictions on the cointegrating space of a vector autoregressive process consisting of the interest rates of the two markets. The model has been tested on data from the domestic US money market and the euromark and euroyen markets. The main finding of our analysis is that we reject the overidentifying restrictions of the models for the USD/DEM case but we are unable to reject them for the USD/JPY case, at the one percent significance level and this implies that the term spreads of the euroyen market are being affected, in the long run, by changes of the US short Fed funds rate.peer-reviewe

The form and content of the Greek crisis legislation

This paper offers a dialectical analysis of the law relating to the Greek crisis. The form and content of the measures introduced in the Greek legal system to deal with the debt crisis is examined under the concept of ‘necessity’. It is argued that this concept, used by the Greek Council of State to justify the constitutionality of these measures, opens a path for a more comprehensive analysis of the measures implemented through the mechanism of the Greek Memoranda of Understanding. The measures are seen as ‘necessary’: on the one hand in their accordance and basis on principles of the European Union; on the other hand in their class orientation and reflecting of specific social (class) interests. But despite their necessity, neither their content, nor the form of implementation of these measures is fixed; it is rather contingent, i.e. dependent on the level of intensification of social (class and intra-class) and economic antagonisms

Interest rates and bank risk-taking

In a recent line of research the low interest-rate environment of the early to mid 2000s is viewed as an element that triggered increased risk-taking appetite of banks in search for yield. This paper uses approximately 18,000 annual observations on euro area banks over the period 2001-2008 and presents strong empirical evidence that low interest rates indeed increase bank risk-taking substantially. This result is robust across a number of different specifications that account, inter alia, for the potential endogeneity of interest rates and/or the dynamics of bank risk. Notably, among the banks of the large euro area countries this effect is less pronounced for French institutions, which held on average a relatively low level of risk assets. Finally, the distributional effects of interest rates on bank risk-taking due to individual bank characteristics reveal that the impact of interest rates on risk assets is diminished for banks with higher equity capital and is amplified for banks with higher off-balance sheet items

A cointegration approach to the lead-lag effect among size-sorted equity portfolios

We develop a framework which illustrates that lagged information transmission may entail cointegration between the current price of small-firm portfolios and the lagged price of large-firm portfolios. We test for cointegration using data which comprises three sets of monthly prices of equity portfolios for the period 1955–2000. The first two sets contain monthly prices of size-sorted portfolios of different capitalisation size, and the third contains portfolios of the same size. We find evidence of cointegration for both sets of different capitalisation size portfolios and no evidence of cointegration for equal-size portfolios. Large-firm portfolio prices are long-run forcing variables for small-firm portfolio prices, suggesting that capitalisation size is a driving force of the lead–lag effect in the long run. For the two sets of different-size portfolios, we estimate error correction models (ECMs) using the auroregressive distributed lag (ARDL) approach, and obtained out-of-sample forecasts of small-firm portfolios returns. These ECMs are found to have superior forecasting performance relative to models without the error correction term, further highlighting the relevance of cointegration between the lagged price of large-firm portfolios and the current price small-firm portfolios

The Greek crisis: Causes and implications

This paper presents and critically discusses the origins and causes of the Greek fiscal crisis and its implications for the euro currency as well as the SEE economies. In the aftermath of the 2007-2009 financial crisis the enormous increase in sovereign debt has emerged as an important negative outcome, since public debt was dramatically increased in an effort by the US and the European governments to reduce the accumulated growth of private debt in the years preceding the recent financial turmoil. Although Greece is the country member of the eurozone that has been in the middle of this ongoing debt crisis, since November 2009 when it was made clear that its budget deficit and mainly its public debt were not sustainable, Greece’s fiscal crisis is not directly linked to the 2007 US subprime mortgage loan market crisis. As a result of this negative downturn the Greek government happily accepted a rescue plan of 110 billion euros designed and financed by the European Union and the IMF. A lengthy austerity programme and a fiscal consolidation plan have been put forward and are to be implemented in the next three years