The ghost of Deauville

Ashoka Mody 07 January 2014

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The aversion to debt restructuring in the Eurozone has been remarkable, even though public debt ratios in several countries are well above the IMF-identified critical debt overhang threshold of 100% of GDP (IMF 2012). By early 2010, some recognised the urgency of restructuring Greek public debt (Calomiris 2010). But the official position between late 2009 and early 2011 deemed even Greek debt to be sustainable. Beyond the particularities of Greece, general principles were invoked. In the words of Cottarelli et al.

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Topics:  Financial markets International finance

Tags:  eurozone, sovereign debt, Eurozone crisis, sovereign debt restructuring, financial contagion, Deauville

Joint liability in international lending: A proposal for amending the Treaty of Lisbon

Kaushik Basu, Joseph Stiglitz 02 January 2014

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The sovereign debt crisis exposed weaknesses in the Eurozone’s financial architecture that may not have been fully anticipated when the founding treaties of the Eurozone were drafted. Key among these weak spots are the provisions of the Treaty of Lisbon which regulate intergovernmental debt obligations and preclude direct financing of sovereigns by the ECB.

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Topics:  EU institutions International finance

Tags:  eurozone, Maastricht Treaty, sovereign debt, moral hazard, Lisbon Treaty, Eurozone crisis, no-bailout clause

Does policy uncertainty reduce economic activity? Insights and evidence from large trade reforms

Kyle Handley, Nuno Limão 23 November 2013

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The impact of policy uncertainty on economic activity is an issue traditionally associated with developing countries. Since 2008, however, the spotlight has shifted. Governments’ responses to the Great Recession and the Eurozone crisis have raised considerable uncertainty about the future policies of advanced economies. Examples include the timing and size of financial bailouts, government expenditures, and the risk of sovereign-debt default. These crises have also heightened trade policy uncertainty.

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Topics:  International trade

Tags:  US, China, WTO, trade, uncertainty, Great Recession, Eurozone crisis

What’s wrong with Europe?

Isabella Rota Baldini, Paolo Manasse,

Date Published

Mon, 11/04/2013

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http://www.cepr.org/active/publications/policy_insights/viewpi.php?pino=67

CEPR Policy Insight No.67 is available to download free of charge here.

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US, productivity, Eurozone crisis

What’s wrong with Europe?

Isabella Rota Baldini, Paolo Manasse 04 November 2013

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The US and Europe: a tale of two cities

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Topics:  EU institutions

Tags:  US, productivity, Eurozone crisis

A fiscal perspective on EU sovereign credit ratings: Did the credit-rating agencies get them right?

Mike Wickens, Vito Polito 30 October 2013

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The financial crisis has put EU and US sovereign credit ratings centre-stage in a way not seen before. Previously, it was taken for granted that all Eurozone governments could borrow at more or less the same risk-free rate as Germany, and that Germany, the UK, and the US would be rated triple-A.

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Topics:  Global crisis International finance

Tags:  sovereign debt, Eurozone crisis, credit-rating agencies

International cooperation and central banks

Harold James 08 October 2013

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Tackling the aftermath of a major financial crisis, the origins of which lie in ‘global imbalances’ and whose transmission mechanisms are cross-national, seems prima facie to demand more substantial and institutionalised cooperation. However, in the five years since the collapse of Lehman Brothers, visions of what central banks can and should do have changed profoundly. In particular, the demand that they should play a much more vigorous and preemptive role in financial supervision has had made them more nationally focused and in consequence less prone to cooperate.

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Topics:  Global crisis International finance

Tags:  monetary policy, global imbalances, Central Banks, global crisis, policy coordination, Eurozone crisis

Credit rating agencies and the Eurozone Crisis: What is the value of sovereign ratings?

Norbert Gaillard 09 September 2013

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The inability of credit rating agencies to anticipate sovereign-debt crises and the tendency to overreact once financial difficulties have piled up are well-known phenomena. Ferri et al. (1999) show that the downgrades by Moody’s and S&P exacerbated the Asian crisis in 1997. Examining the Great Depression, Gaillard (2011) and Flandreau et al. (2011) find that major credit rating agencies did not lower sovereign credit ratings until 1931.

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Topics:  Europe's nations and regions Global crisis

Tags:  Eurozone crisis

Fiscal stimulus in times of high public debt: Reconsidering multipliers and twin deficits

Christiane Nickel, Andreas Tudyka 07 September 2013

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The stimulus impact of a government-spending shocks varies with the economic environment (Ilzetzki, Mendoza, and Végh 2013). One important determinant is the level of government indebtedness – particularly when the nation’s fiscal sustainability may be in doubt. The economic logic of this is straightforward.

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Topics:  Macroeconomic policy

Tags:  fiscal stimulus, Eurozone crisis

Sovereign default risk and banks in Europe’s monetary union

Harald Uhlig 05 September 2013

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With the one year anniversary of ECB President Draghi’s announcement to “do whatever it takes” and the announcement of the OMT (Outright Monetary Transactions) programme, bond yields have declined and fears of sovereign defaults have receded in countries such as Portugal, Spain and Italy. We all hope that this danger has passed!

But it may well be that we are just witnessing a brief calm before the storm returns. Right now, then, is a good opportunity to solidify what we have and to make the financial system in the Eurozone more robust against such risks in the future.

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Topics:  Global crisis International finance

Tags:  Eurozone crisis

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