266 research outputs found
A Tale of Three Countries: Recovery after Banking Crises
Highlights:
• Iceland, Ireland and Latvia experienced similar developments before the crisis, such as sharp
increases in banks’ balance sheets and the expansion of the construction sector. However the impact of the crisis was different: Latvia was hit harder than any other country in the world. Ireland also suffered heavily, while Iceland came out from the crisis with the smallest fall in
employment, despite the greatest shock to the financial system.
• There were marked differences in policy mix: currency collapse in Iceland but not in Latvia,
letting banks fail in Iceland but not in Ireland, and the introduction of strict capital controls
only in Iceland. The speed of fiscal consolidation was fastest in Latvia and slowest in Ireland.
• Economic recovery has started in all three countries and there are several encouraging signals. The programme targets in terms of fiscal adjustment, structural reforms and financial reform are on track in all three countries.
• Iceland seems to have the right policy mix.
• Internal devaluation in Ireland and Latvia through wage cuts did not work, because privatesector wages hardly changed. The productivity increase was significant in Ireland and moderate in Latvia, yet was the result of a greater fall in employment than the fall in output, with harmful social consequences.
• The experience with the collapse of the gigantic Icelandic banking system suggests that letting banks fail when they had a faulty business model is the right choice.
• There is a strong case for a European banking federation
Beyond the crisis: prospects for emerging Europe
This paper assesses the impact of the 2008-09 global financial and economic crisis on the
medium-term growth prospects of the countries of central and eastern Europe, the Caucasus
and Central Asia, which began an economic transition about two decades ago. We use crosscountry
growth regressions, putting special emphasis on a proper consideration of the crisis and robustness. We find that the crisis has had a major impact on the within-sample fit of the models used and that the positive impact of EU enlargement on growth is smaller than previous research has shown. The crisis has also altered the future growth prospects of the countries studied, even in the optimistic but unrealistic case of a return to pre-crisis capital
inflows and credit booms
A NEW LOOK AT NET BALANCES IN THE EUROPEAN UNION’S NEXT MULTIANNUAL BUDGET. Bruegel Working Paper Issue 10 12 December 2019
Whenever the European Union’s budget is discussed, much of the political
focus is on net balances – whether countries pay in more than they receive
– rather than on the broader overall positive effects of EU spending. The
largest net contributor countries have sought to limit their contributions,
leading to the build-up of an ad-hoc, complex, opaque and regressive
system of revenue corrections.
To inform debate on the 2021-2027 EU budget, I estimated the impact on net
balances of the 2018 European Commission multiannual budget proposal,
under three scenarios: elimination of rebates for all of the 2021-2027 new
budget period, gradual elimination of rebates and non-elimination of
rebates. These estimates were done on the basis of the EU’s ‘operating
budgetary balance’ indicator, and on the basis of a new and broader
indicator, the ‘net direct balance’. The calculation also takes into account
the estimated net contribution of the United Kingdom to the 2021-2027 EU
budget based on the draft EU-UK withdrawal agreement.
Under the baseline scenario of the Commission’s proposal, those member
states that currently benefit from rebates would face between 0.01 percent
of GNI and 0.06 percent of GNI increases in their net contributions to the
EU budget, measured by the EU’s operating budgetary balance indicator.
Meanwhile, central and eastern European member states that received
several percent of their GNI as net payments from the EU in 2014-2020
would face significant reductions, though they would still receive net
payments of about two percent of their GNI in 2021-2027.
The methodology in this paper can be easily applied to estimate the net
balance implications of any new MFF proposal
Real effective exchange rates for 178 countries: A new database
We use data on exchange rates and consumer price indices and the weighting matrix derived by Bayoumi, Lee and Jaewoo (2006) to calculate consumer price index-based REER. The main novelties of our database are that (1) it includes data for 178 countries –many more than in any other publicly available database– plus an external REER for the euro area, using a consistent methodology; (2) it includes up-to-date REER values, such as data for January 2012; and (3) it is relatively easy to calculate REER against any arbitrary group of countries. The annual
database is complete for 172 countries and the euro area for 1992-2011 and data is available for six other countries for a shorter period. For several countries annual data is available for earlier years as well, eg data is available for 67 countries from 1960. The monthly database is complete for 138 countries for January 1995-January 2012, and data is also available for 15 other countries for a shorter period. The indicators calculated by us are freely downloadable and will be irregularly updated
The euro area's tightrope walk: debt and competitiveness in Italy and Spain
- Competitiveness adjustment in struggling southern euro-area members requires persistently
lower inflation than in major trading partners, but low inflation worsens public debt
sustainability. When average euro-area inflation undershoots the two percent target, the
conflict between intra-euro relative price adjustment and debt sustainability is more severe.
- In our baseline scenario, the projected public debt ratio reduction in Italy and Spain is too
slow and does not meet the European fiscal rule. Debt projections are very sensitive to
underlying assumptions and even small negative deviations from GDP growth, inflation and
budget surplus assumptions can easily result in a runaway debt trajectory.
- The case for a greater than five percent of GDP primary budget surplus is very weak. Beyond vitally important structural reforms, the top priority is to ensure that euro-area inflation does not undershoot the two percent target, which requires national policy actions and more accommodative monetary policy. The latter would weaken the euro exchange rate, thereby facilitating further intra-euro adjustment. More effective policies are needed to foster growth. But if all else fails, the European Central Bank’s Outright Monetary Transactions could
reduce borrowing costs
The Case for Reforming Euro Area Entry Criteria
The global economic and financial crisis has raised further concerns about the euro-entry criteria, in
addition to other factors, such as the effective tightening of the criteria due to the enlargement of the
EU from 12 to 27 members, the highly unfavourable property of business cycle dependence, the
internal inconsistency of the criteria due to the structural price level convergence of Central and
Eastern European countries, and the continuous violation of the criteria by euro-area members. The
interest rate criterion became a highly volatile measure. Many US metropolitan areas would fail to
qualify to be members of the US monetary union by applying the currently used inflation criterion to
the US. It is time to reform the criteria and to strengthen their economic rationale within the legal
framework of the EU treaty. A good solution would be to relate all criteria to the average of the euro
area and simultaneously to extend the compliance period from the currently considered one year to a longer period
Exchange Rate Policy and Economic Growth after the Financial Crisis in Central and Eastern Europe
In a paper on the effects of the global financial crisis in Central and Eastern Europe (CEE), the
author reacts to a paper of Åslund (2011) published in the same issue of Eurasian Geography and
Economics on the influence of exchange rate policies on the region’s recovery. The author argues
that post-crisis corrections in current account deficits in CEE countries do not in themselves signal a
return to steady economic growth. Disagreeing with Åslund over the role of loose monetary policy in
fostering the region’s economic problems, he outlines a number of competitiveness problems that
remain to be addressed in the 10 new EU member states of CEE, along with improvements in framework conditions supporting future macroeconomic growth
Banking system soundness is the key to more SME financing. Bruegel Policy Contribution 2013/10, July 2013
The SME access-to-finance problem is not universal in the European Union and there are reasons for the fall in credit aggregates and higher SME lending rates in southern Europe. Possible market failures, high unemployment and externalities justify making greater and easier access to finance for SMEs a top priority. Previous European initiatives were able to support only a tiny fraction of Europe’s SMEs; merely stepping-up these programmes is unlikely to result in a breakthrough. Without repairing bank balance sheets and resuming economic growth, initiatives to help SMEs get access to finance will have limited success. The European Central Bank can foster bank recapitalisation by performing in the toughest possible way the asset quality review before it takes over the single supervisory role. Of the possible initiatives for fostering SME access to finance, a properly designed scheme for targeted central bank lending seems to be the best complement to the banking clean-up, but other options, such as increased European Investment Bank lending and the promotion of securitisation of SME loans, should also be explored
RESISTING DEGLOBALISATION: THE CASE OF EUROPE. Bruegel Working Paper Issue 1 3 February 2020
Global trade and finance data indicates that the pre-2008 pace of economic
globalisation has stalled or even reversed. The European Union has defied
this trend, with trade flows and financial claims continuing to grow after the
recovery from the 2008 global economic and financial crisis. Immigration,
including intra-EU mobility, has also continued to increase.
Our analysis of public opinion in EU countries shows that support for
globalisation, free trade and immigration, is on the rise. EU public opinion on
these issues does not differ greatly from the rest of the world.
Our panel-model estimates for EU countries from 2009 to 2019 find a strong
association between the unemployment rate and the prevailing view on
whether globalisation is an opportunity for economic growth. A regression for
19 non-EU countries shows the unemployment rate is significantly associated
with public support for trade. These findings suggest that cyclical economic
factors partially drive views about globalisation. Our analysis suggests younger
and better-educated people in the EU view globalisation more positively, as
do those in better economic situations, those who feel politically included
and those with a positive view of the EU. Increased support for globalisation
among EU citizens might also have been boosted by policies to improve social
fairness, and by some success in containing asylum-seeker pressure. However,
the EU continues to have pressing social problems, concentrated in some
member countries with weaker economic outlooks. With global and European
economic growth slowing and the risk of a European recession increasing,
unemployment tensions could re-emerge, which might reverse recent
increases in support for globalisation
Fiscal Federalism in Crisis: Lessons for Europe from the US
The euro area is facing crisis, while the US is not, though the overall fiscal situation and outlook is better in the euro area than in the US, and though the US faces serious state-level fiscal crises. A higher level of fiscal federalism would strengthen the euro area, but is not
inevitable. Current fiscal reform proposals (strengthening of current rules, more policy
coordination and an emergency financing mechanism) will if implemented result in some
improvements. But implementation might be deficient or lack credibility, and could lead to
disputes and carry a significant political risk. Introduction of a Eurobond covering up to 60
percent of member states’ GDP would bring about much greater levels of fiscal discipline
than any other proposal, would create an attractive Eurobond market, and would deliver a strong message about the irreversible nature of European integration
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