An Outline of a Progressive Resolution to the Euro-area Sovereign Debt Overhang: How a Five year Suspension of the Debt Burden Could Overthrow Austerity

The present study puts forward a plan for solving the sovereign debt crisis in the euro area (EA) in line with the interests of the working classes and the social majority. Our main strategy is for the European Central Bank (ECB) to acquire a significant part of the outstanding sovereign debt (at market prices) of the countries in the EA and convert it to zero-coupon bonds. No transfers will take place between individual states; taxpayers in any EA country will not be involved in the debt restructuring of any foreign eurozone country. Debt will not be forgiven: individual states will agree to buy it back from the ECB in the future when the ratio of sovereign debt to GDP has fallen to 20 percent. The sterilization costs for the ECB are manageable. This model of an unconventional monetary intervention would give progressive governments in the EA the necessary basis for developing social and welfare policies to the benefit of the working classes. It would reverse present-day policy priorities and replace the neoliberal agenda with a program of social and economic reconstruction, with the elites paying for the crisis. The perspective taken here favors social justice and coherence, having as its priority the social needs and the interests of the working majority

The international synchronisation of business cycles: the role of animal spirits

Business cycles among industrial countries are highly correlated. We develop a two-country behavioral macroeconomic model where the synchronization of the business cycle is produced endogenously. The main channel of synchronization occurs through a propagation of “animal spirits”, i.e. waves of optimism and pessimism that become correlated internationally. We find that this propagation occurs with relatively low levels of trade integration. We do not need a correlation of exogenous shocks to generate synchronization. We also empirically test the main predictions of the model

Capital flows, long term bond yields and fiscal stance : the Eurozone policy trilemma

The paper aims at estimating the existence of a trilemma in the Eurozone, i.e., to assess to what extent the net capital flows, the volatility of bond yields and the fiscal stance are strictly linked to each other constraining countries’ ability to manage the internal policy goals. The existence of constraints on policy alternatives is estimated for 11 Eurozone countries from 2002 till 2012. The sample is then divided into pre- (2002–2008) and post-crisis (2009–2012) periods. A further division between the PIIGS and the non-PIIGS is then applied. The results show the validity of the trilemma for the whole Euro area and for the whole period but with some distinction between the pre- and post-crisis periods and between the PIIGS and the non-PIIGS countries. The existence of the trilemma underlines the presence of national constraints and suggests, for the future of the Eurozone, to push towards centralized fiscal policy instruments.info:eu-repo/semantics/publishedVersio

Neoliberal growth models, monetary union and the Euro Crisis : a post-Keynesian perspective

The paper offers an account of the Euro crisis based on post-Keynesian monetary theory and its typology of demand regimes. Neoliberalism has transformed social and financial relations in Europe but it has not given rise to a sustained profit-led growth process. Instead, growth has relied either on financial bubbles and rising household debt (‘debt-driven growth’) or on net exports (‘export-driven growth’). In Europe the financial crisis has been amplified by an economic policy architecture (the Stability and Growth Pact) that aimed at restricting the role of fiscal policy and monetary policy. This neoliberal economic policy regime in conjunction with the separation of monetary and fiscal spheres has turned the financial crisis of 2007 into a sovereign debt crisis in southern Europe

European Banking Union

Ulazak u Europsku uniju, za novije zemlje članice nužno znači ulazak i u europsku Ekonomsku i monetarnu uniju nakon ispunjavanja nominalnih kriterija konvergencije te ostalih propisanih preduvjeta. Budući da je propast Lehman Brothers-a 2008. godine i pojava financijske krize dovela do razdora i nesigurnosti cjelokupnog bankarskog sustava, kako u cijelom svijetu tako i u Europskoj uniji, odnosno europskoj Ekonomskoj i monetarnoj uniji, osnivanje bankovne unije kao dijela integriranog financijskog okvira predstavlja odgovor na za sve gospodarske i financijske probleme koji su pritom nastali. Cilj ovog diplomskog rada je analizirati proces nastanka bankovne unije te utvrditi njenu ulogu u bankarskom sektoru zemalja članica Europske unije, kao i saniranju posljedica financijske krize. Isto tako, cilj je opisati važnost tri stupa bankovne unije koja čine: jedinstveni nadzorni mehanizam, jedinstveni sanacijski mehanizam te povezani mehanizmi financiranja. Njihove odrednice predstavljaju glavne smjernice uspješnog djelovanja gospodarskog i financijskog sustava. Nadalje, analizira se i uloga, odnosno važnost Europske središnje banke i Europskog mehanizma stabilnosti u nadzoru bankovne unije koji je bitan za uspješno funkcioniranje sustava.Joining the European Union, for the newer Member States necessary means entering into the European Economic and Monetary Union after filling the nominal convergence criteria and other prescribed requirements. Since the collapse of Lehman Brothers in 2008 and the emergence of the financial crisis led to discord and uncertainty of the overall banking system, both worldwide and in European Union and European Economic and Monetary Union, the establishment of banking union as part of an integrated financial framework is a response to all the economic and financial problems that are pushing incurred. The aim of this diploma work is to analyze the process of creating banking union and to determine its role in the banking sector the EU Member States, as well as dealing with the consequences of the financial crisis. Also, the aim is to describe the importance of the three mechanisms that creates banking union: a Single Supervisory Mechanism, a Single Recovery Mechanism and related funding mechanisms. Their guidelines are the main guidelines for successful operation of the economic and financial system. Furthermore, assesses the role or importance of the European Central Bank and the European stability mechanism to control banking union that is essential for the successful function of the system

Pairwise tests of purchasing power parity

Given nominal exchange rates and price data on N + 1 countries indexed by i = 0,1,2,…, N, the standard procedure for testing purchasing power parity (PPP) is to apply unit root or stationarity tests to N real exchange rates all measured relative to a base country, 0, often taken to be the U.S. Such a procedure is sensitive to the choice of base country, ignores the information in all the other cross-rates and is subject to a high degree of cross-section dependence which has adverse effects on estimation and inference. In this article, we conduct a variety of unit root tests on all possible N(N + 1)/2 real rates between pairs of the N + 1 countries and estimate the proportion of the pairs that are stationary. This proportion can be consistently estimated even in the presence of cross-section dependence. We estimate this proportion using quarterly data on the real exchange rate for 50 countries over the period 1957-2001. The main substantive conclusion is that to reject the null of no adjustment to PPP requires sufficiently large disequilibria to move the real rate out of the band of inaction set by trade costs. In such cases, one can reject the null of no adjustment to PPP up to 90% of the time as compared to around 40% in the whole sample using a linear alternative and almost 60% using a nonlinear alternative

Rules, Imbalances and Growth in the Eurozone

This paper highlights the rules and institutions that have characterized the European Monetary Union during its prolonged crisis and discusses the policies implemented in the Eurozone, stressing the limits of the strategy pursued by the European authorities. It also examines the issues of current account imbalances, economic growth and the problem of debt, and their interconnections. The main purpose of the paper is to indicate some economic solutions and political arrangements in order to complete the institutional system of the EMU. This requires appropriate reforms of its institutional architecture, where a key point is fiscal union. But such reforms require changes in the treaties in order to make the Eurosystem more consistent and endowed of democratic legitimacy, so to have the tools, resources and policies necessary to contribute to the development, stability and cohesion of the Eurozone countries