The Cypriot banking system is insolvent; it needs a large capital injection. As in several other peripheral states of the Eurozone, Cyprus cannot resolve the crisis alone. Given an already high debt-to-GDP ratio and an oversized banking system, recapitalising the banks via sovereign debt would produce unsustainable sovereign-debt levels and, ultimately, sovereign default.
Cyprus: What are the alternatives?
Thorsten Beck, 22 March 2013
Walking back from Cyprus
Mitu Gulati, Lee C. Buchheit , 20 March 2013
On Friday 15 March 2013, European leaders trespassed on consecrated ground. They insisted that Cyprus impose losses – euphemistically dubbed a 'solidarity levy' – on insured depositors with Cypriot banks as a condition to receiving EZ/IMF bailout assistance. Entering Friday’s meeting, the leaders had four options on the table:
Why the rush? Short-term crisis resolution and long-term bank stability
Thorsten Beck, 16 October 2012
The recent crisis has exposed a critical gap in financial safety nets across Europe and many other developed countries, i.e. a deficient if not absent bank resolution framework. This gap in the financial safety net has become even more critical in the case of cross-border banks.
Learning from past crises: Into the safety zone
Caroline Van Rijckeghem, Beatrice Weder di Mauro, 25 September 2012
Since the lost decade of the 1980s a rich literature on financial crises has evolved, including a theoretical literature which emphasised the potential for self-fulfilling expectations within a zone of vulnerability (e.g. Krugman 1996).
On banking union, speak the truth
Charles Wyplosz, 17 September 2012
The European Commission has produced an interesting proposal on EZ banking union (Commission 2012). Despite its many shortcomings, it is a good start. And now finance ministers have started to deconstruct the proposal. Part of the deconstruction comes from the ministers’ shameful capture by national bank lobbies, but not all. The proposal includes some clumsy features.
Italy’s 'this time it’s different' moment: With rejoinder by Giavazzi
Charles Wyplosz, 15 August 2012
The recent article by Francesco Giavazzi is both depressing and déjà vu all over again.
Thanks to the ECB
Charles Wyplosz, 30 July 2012
On Thursday, the President of the European Central Bank, Mario Draghi, created a buzz by saying that the central bank “is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” This was enough to send the euro up and bond spreads down. But what was Draghi really saying? Very smart things, in fact, for the third time.
Saving the euro requires restoring Spain’s competitiveness
Bernard Delbecque, 30 July 2012
The Eurozone crisis has confirmed that a monetary union is more resistant to market pressures than a fixed exchange rate regime. This fact explains why policymakers have been able to muddle through the current crisis by producing compromises and gaining time.
A Redemption Pact for Europe: Time to act now
Peter Bofinger, Claudia M. Buch, Lars P Feld, Wolfgang Franz, Christoph M Schmidt, 25 July 2012
Since the beginning of this year, the Eurozone crisis has worsened. Despite notable efforts, the June European summit has not succeeded in restoring confidence in the euro. Fearing the restructuring of public debt in EZ countries, investors have turned their back on sovereigns in the Eurozone, and even on the Eurozone as a whole.
End of game? Don’t bet on it
Charles Wyplosz, 25 July 2012
Here we go again:
- Fiscal consolidation: At what speed?Blanchard, Leigh
- Escaping liquidity traps: Lessons from the UK’s 1930s escapeCrafts
- The lessons of the North Atlantic crisis for economic theory and policyStiglitz
- Helicopter money as a policy optionReichlin, Turner, Woodford
- The case for 4% inflationBall
- A tale of two depressions: What do the new data tell us? February 2010 updateEichengreen, O’Rourke
- Educated in America: College graduates and high school dropoutsHeckman, LaFontaine
- Eurozone breakup would trigger the mother of all financial crisesEichengreen
- Debt, deleveraging, and the liquidity trap: A new modelKrugman
- Panic-driven austerity in the Eurozone and its implicationsDe Grauwe, Ji
Reichlin, Baldwin, 14 April 2013
Reichlin, Turner, Woodford
CEPR Policy Research
- The "Greatest" Carry Trade Ever? Understanding Eurozone Bank RisksAcharya, Steffen
- Political Credit Cycles: The Case of the Euro ZoneFernández-Villaverde, Garicano, Santos
- Winning by Losing: Incentive Incompatibility in Multiple QualifiersDagaev, Sonin
- Income and schoolingBrückner, Gradstein
- Monetary Policy and Rational Asset Price BubblesGalí
- How the EZ crisis is permanently changing EU institutionsMicossi
- WTO 2.0: Global governance of supply-chain tradeBaldwin
- Is US economic growth over? Faltering innovation confronts the six headwindsGordon
- The economic crisis: How to stimulate economies without increasing public debtWood
- Austerity: Too Much of a Good Thing?Corsetti