Balance-sheet repairs in European banks

Nadege Jassaud, Heiko Hesse 13 April 2013

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Much has been achieved to address the EU financial crisis.1 Since 2011, EU banks have boosted their capital adequacy ratios, partly due to the second EU-wide stress-testing and recapitalisation exercise led by the European Banking Authority. Over two years, the tier 1 ratio of European banks (sample of 57 EU banks) increased by 1.2%, from 9% in December 2010 to 10.2% in June 2012.

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Topics:  Europe's nations and regions Global governance

Tags:  Banking crisis, Eurozone crisis, balance sheets

Time for the Eurozone to shift gear: Issuing euros to finance new spending

Biagio Bossone 08 April 2013

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The crisis in peripheral Europe is deepening and spreading to core Europe, affecting France and now threatening Germany (Wood 2013). Political concerns in a number of Eurozone countries undermine confidence within the region. The Cyprus blunder has added to overall nervousness (see Wyplosz 2013). In Italy, falling productivity and falling real incomes, as well as prospects for yet more austerity to come, are further depressing the economy. Financial markets are giving the country the benefit of the doubt, in the expectation that a new government will soon be in charge.

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Topics:  Monetary policy

Tags:  Eurozone crisis, Cyprus

Budget balance, structural unemployment and fiscal adjustments: The Spanish case

Javier Andrés, Rafael Doménech 05 April 2013

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One of the most important questions in the current process of fiscal consolidation in many developed economies concerns the size and the pace of the adjustment. An excessive and/or too-fast fiscal retrenchment can have dramatic effects on unemployment and growth, while if it is too slow, it can prove to be ineffective and lack credibility in the eyes of the financial markets. Thus, when the debt-to-GDP ratio is high and there is limited fiscal space, the challenge is to find the proper balance between growth, efficiency and credibility of the fiscal adjustment.

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Topics:  Europe's nations and regions

Tags:  unemployment, Spain, fiscal policy, Eurozone crisis, structural adjustment

A banking union for the Eurozone

Giovanni Dell'Ariccia, Rishi Goyal, Petya Koeva-Brooks, Thierry Tressel 05 April 2013

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Before the crisis, the common currency and single market promoted financial integration. Banks and financial institutions operated with ease across countries; credit went where it was in demand; and portfolios became increasingly more diversified. The interbank market functioned smoothly, and monetary conditions were relatively uniform across the Eurozone. There were side effects, such as large capital flows within the Eurozone and the associated buildup of sovereign and private-sector imbalances.

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Topics:  EU institutions EU policies

Tags:  regulation, Eurozone crisis, banking union

The decoupling of the US and European economies: Evidence from nowcasting

Lucrezia Reichlin, Domenico Giannone, Jasper McMahon, Saverio Simonelli 29 March 2013

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One of the most interesting features of recent business-cycle history is the decoupling of US real economic activity from that of the Eurozone (CEPR 2012, ECB 2013). CEPR's Euro Area Business Cycle Dating Committee estimates that the Eurozone entered a new recession in the third quarter of 2011, something the US has so far avoided. The decoupling is at odds with historical regularities which show a high level of synchronisation between business cycles in the US and the Eurozone1.

Decoupling

But the overall decoupling raises two questions:

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Topics:  Europe's nations and regions Frontiers of economic research

Tags:  Germany, decoupling, Eurozone crisis, nowcasting

The capital controls in Cyprus and the Icelandic experience

Jon Danielsson 28 March 2013

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The Cypriot government, European authorities and the IMF have concluded that capital controls are the best way to prevent a total collapse of the Cypriot financial system. Motivated by the obvious fear that anybody with money left over in Cyprus will seek to take their money out as soon as possible, temporary capital controls are to be put in place to prevent this. We are told that they will be limited in scope and temporary. Hopefully, for the Cypriots’ sake, that is correct.

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Topics:  EU institutions Macroeconomic policy

Tags:  Iceland, capital controls, Eurozone crisis, Cyprus

International capital flows during crises: Gross matters

Fernando A Broner, Tatiana Didier, Aitor Erce, Sergio Schmukler 28 March 2013

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The financial crises of the last three decades have spurred interest in the dynamics of international capital flows. Most of the work on the topic has focused on the behaviour of net capital flows, namely the difference between the foreign purchases of domestic assets (or capital inflows by foreigners) and the domestic purchases of foreign assets (or capital outflows by domestic agents). However, much less is known about the individual behaviour of these two components on net capital flows, which we denote as gross capital flows.

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Topics:  Global crisis

Tags:  financial crisis, Eurozone crisis, gross capital flows

A modern history of fiscal prudence and profligacy

Ariel Binder, Paolo Mauro, Rafael Romeu, Asad Zaman 27 March 2013

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Considering the major impact of the global economic and financial crisis on the fiscal accounts of the main advanced economies, and their widely differing policy responses, how confident should we be that each of these countries remains fiscally prudent? And, more generally, should we think of a country's degree of fiscal prudence as constant throughout its history, or are there identifiable times of fiscal profligacy even for countries that eventually rectified their behaviour and never defaulted?

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Topics:  Global crisis Macroeconomic policy

Tags:  Eurozone crisis

Europe’s Cyprus blunder and its consequences

Nicolas Véron 25 March 2013

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The late Mike Mussa1 noted that “there are three types of financial crises:

  • crises of liquidity;
  • crises of solvency; and
  • crises of stupidity.”

This quip comes to mind when considering the developments of the past ten days around Cyprus.

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Topics:  EU institutions Macroeconomic policy

Tags:  Eurozone crisis, banking union, Cyprus, deposit guarantees

Eurozone: Looking for growth

Laurence Boone, Céline Renucci, Ruben Segura-Cayuela 25 March 2013

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The financial crisis that erupted in 2008, prolonged by a sovereign crisis in the Eurozone, led to a massive contraction in trade, as well as in investment in physical and human capital; thus undermining the foundations of future growth. This may well continue as growth will not rapidly rebound while deleveraging slowly proceeds across Eurozone economies. Empirical evidence suggests deleveraging episodes accompanied by a housing crisis will take on average five and a half years across high-income OECD countries (or seven years when accompanied by a banking crisis (Aspachs-Bracon et al.

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Topics:  Europe's nations and regions Productivity and Innovation

Tags:  growth, productivity, Ageing, Eurozone crisis, Solow

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