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  • Author: Paul De Grauwe
  • Publication Date: 05-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: One of the major problems of the eurozone is the divergence of the competitive positions that have built up since the early 2000s. This divergence has led to major imbalances in the eurozone where the countries that have seen their competitive positions deteriorate (mainly the so - called ' PIIGS ' – Portugal, Ireland, Italy, Greece and Spain ) have accumulated large current account deficits and thus external indebtedness, matched by current account surpluses of the countries that have improved their competitive positions (mainly Germany).
  • Topic: Economics, Markets, Regional Cooperation, Global Recession, Financial Crisis
  • Political Geography: Europe, Greece, Germany, Spain, Italy, Portugal, Ireland
  • Author: Daniel Gros
  • Publication Date: 04-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: Lax financial conditions can foster credit booms. The global credit boom of the last decade led to large capital flows across the world, including large movements of resources from the Northern countries of the euro area towards the Southern part. Since the start of the crisis and more markedly after 2009, these flows have suddenly stopped, creating severe adjustment pressures. This paper argues that, at this point, the common monetary policy can only try to mitigate the unavoidable adjustment by maintaining overall financial stability. The challenge is to strike a delicate balance between providing liquidity for solvent institutions while keeping the overall pressure on for a rapid correction of the imbalances.
  • Topic: Economics, Markets, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: Daniel Gros, Cinzia Alcidi
  • Publication Date: 04-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: Spain faces high unemployment and slow growth. This paper focuses on an important source of those problems, namely its housing market. While some adjustment has occurred since Spain's housing bubble burst in 2008, the authors find that house prices and construction need to decrease more to slow Spain's unsustainable accumulation of foreign debt.
  • Topic: Debt, Economics, Markets, Financial Crisis
  • Political Geography: Europe, Spain
  • Author: Rym Ayadi, Emrah Arbak, Willem Pieter De Groen
  • Publication Date: 06-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: Adopted by the European Commission in July 2011, the proposed Capital Requirements Directive and Regulation (CRD IV-CRR) translate into EU law the Basel III standards adopted by the Basel Committee for Banking Supervision (BCBS). Among other things, the proposal increases the quality and quantity of the minimum capital; introduces new rules on liquidity, leverage ratios, counter-cyclical buffers and systemically important financial institutions; and amends the definitions of counterparty credit risk and rules for the banking book. The rules complement the earlier amendments that strengthened the capital and disclosure requirements for the trading book and resecuritization instruments as well as requirements to ensure that remuneration policies do not lead to excessive risk-taking.
  • Topic: Debt, Economics, Markets, Financial Crisis
  • Political Geography: Europe
  • Author: Stefano Micossi
  • Publication Date: 06-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: Once again the European Council will meet in an emergency session at the end of June, with the eurozone economy in recession and actually plummeting in its Southern periphery. Further doubts are also growing on the sustainability of sovereign debts due to the vicious spiral of deteriorating bank balance sheets, ballooning potential liabilities from banking rescues and widening spreads on government borrowings. The sovereign debt crisis in the periphery has now turned into a fully fledged banking crisis that threatens to spread from Greece to Spain and tomorrow, who knows, to Italy, France and even Germany itself.
  • Topic: Debt, Economics, Regional Cooperation, Financial Crisis, Governance
  • Political Geography: Europe, Greece, France, Germany, Spain, Italy
  • Author: Daniel Gros
  • Publication Date: 05-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: As the euro crisis continues and unemployment climbs to new heights, the clamour calling for Europe to 'do something' is getting louder. But the real question is: can Europe, or rather the EU, do 'something' that would actually have a real impact on unemployment? In other words, does a European plan or employment strategy make sense?
  • Topic: Economics, Markets, Labor Issues, Financial Crisis
  • Political Geography: Europe
  • Author: H. Onno Ruding
  • Publication Date: 05-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The so-called 'euro crisis' is of the utmost economic, financial and political importance for all member countries of the euro area and for the future of the Economic and Monetary Union (EMU). In my view, however, it is not primarily a euro crisis in the strict sense. The euro itself is of course involved, but, as a currency with a rather stable exchange rate vis-à-vis other currencies and with a major role in global financial markets, it is not at the heart of the crisis. Rather the crisis is a matter of the serious imbalances in the economies of several euro-area countries, particularly their budget deficits and sovereign debts and as well as their lack of competitiveness and balance-of-payments deficits.
  • Topic: Economics, Markets, Monetary Policy
  • Political Geography: Europe
  • Author: Daniel Gros, Thomas Mayer
  • Publication Date: 08-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: For most of the time since the early 1950s, national savings in Germany have tended to exceed national investment, resulting in a current account surplus. Most of these excess savings have been intermediated by the domestic banking system, which has had difficulties investing these German surpluses abroad given that it is prohibited by law from taking any exchange rate risk. This tended to keep the surplus within limits most of the time (less than 1- 2% of GDP). With the advent of the euro, however, German surpluses could become much larger and seem now to have become structurally engrained at 6% of GDP, or over one-quarter of savings. Since the start of the euro crisis, German private savers have repatriated their investments – effectively unloading their exposure onto the public sector as German banks have deposited hundreds of billions of euro at the Bundesbank. These funds are being lent by the ECB to banks in the euro area periphery (at 75 bps) – ensuring effectively a negative real return.
  • Topic: Economics, International Trade and Finance, Markets, Sovereign Wealth Funds
  • Political Geography: Europe, Germany
  • Author: Daniel Gros
  • Publication Date: 07-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The sentiment that the euro is now in real danger is based in large part on the widespread conviction that interest rates of 6-7% are simply unsustainable for both Italy and Spain., After taking a closer look at the fundamentals, however, Daniel Gros concludes in this new Policy Brief that both countries should be able to live with this level of interest rates for quite some time, but only if they mobilize domestic savings, which remain strong in both countries. For Spain, some debt/equity swaps are also needed.
  • Topic: Debt, Economics, Markets, Financial Crisis
  • Political Geography: Europe, Spain, Italy
  • Author: Stefano Micossi
  • Publication Date: 07-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: Two years after the first Greek rescue in May 2010, crisis management in the eurozone has still failed to restore confidence. A vivid picture of the situation can be found in Figure 1: the constellation of spreads on ten-year sovereign debts over the Bund in the eurozone is wider than it was before monetary union, as though financial markets had already discounted its breakdown. Temporary respites, notably in the early part of 2012, have not interrupted the trend of increasing divergence that risks undermining the credibility of adjustment efforts under way.
  • Topic: Debt, Economics, Markets, Monetary Policy, Financial Crisis
  • Political Geography: Europe