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on European Economics |
| By: | Panetta, Fabio; Correa, Ricardo; Davies, Michael; Di Cesare, Antonio; Marques, José-Manuel; Nadal de Simone, Francisco; Signoretti, Federico; Vespro, Cristina; Vildo, Siret; Wieland, Martin; Zaghini, Andrea |
| Abstract: | The financial crisis and the ensuing recession have caused a sharp deterioration in public finances across advanced economies, raising investor concerns about sovereign risk. The concerns have so far mainly affected the euro area, where some countries have seen their credit ratings downgraded during 2009−11 and their funding costs rise sharply. Other countries have also been affected, but to a much lesser extent. Greater sovereign risk is already having adverse effects on banks and financial markets. Looking forward, sovereign risk concerns may affect a broad range of countries. In advanced economies, government debt levels are expected to rise over coming years, due to high fiscal deficits and rising pension and health care costs. In emerging economies, vulnerability to external shocks and political instability may have periodic adverse effects on sovereign risk. Overall, risk premia on government debt will likely be higher and more volatile than in the past. In some countries, sovereign debt has already lost its risk-free status; in others, it may do so in the future. The challenge for authorities is to minimise the negative consequences for bank funding and the flow-on effects on the real economy. This report outlines the impact of sovereign risk concerns on the cost and availability of bank funding over recent years. It then describes the channels through which sovereign risk affects bank funding. The last section summarises the main conclusions and discusses some implications for banks and the official sector. Two caveats are necessary before discussing the main findings. First, the analysis focuses on causality going from sovereigns to banks, as is already the case in some countries, and, looking forward, is a possible scenario for other economies. But causality may clearly also go from banks to sovereigns. However, even in this second case, sovereign risk eventually acquires its own dynamics and compounds the problems of the banking sector. Second, the report examines the link between sovereign risk and bank funding in general terms, based on recent experience and research. It does not assess actual sovereign risk and its impact on bank stability in individual countries at the present juncture. |
| Keywords: | Sovereign debt; banks; financial turmoil |
| JEL: | G21 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32581&r=eec |
| By: | Cvecic, Igor; Host, Alen |
| Abstract: | The achievement of social and economic development involves three processes: the increase in gross domestic product per capita, the reduction of unemployment and increase of employment, the reduction of poverty and income inequalities. Directly related to that are the objectives of new EU member states, as well as other European countries that wish to join the Union and thus contribute to their own development - economic and social. Integrating the new Member States and candidate countries represents a great challenge for the EU, and especially for the social systems of individual countries. The reason for this is primarily a variety of social systems and socio-demographic characteristics of these countries. Because of the strong convergence those can adversely affect their economies, but also the entire Internal Market. With the support of financial instruments and measures that encourage convergence at the national and European level, national social policies contribute to overall economic and social development and economic and social cohesion. Economic convergence leads to social convergence, but not necessarily to the harmonization of social systems. The goals of the paper include the proper assessment of different effects and the dynamics of social (and economic) reforms, which enable a greater level of social convergence, the evaluation of the effectiveness of national social policies and the assessment of the ability of individual countries to adapt to the contrasting demands of social security and employment, and economic growth and development. |
| Keywords: | adjustment of social systems; European Union; social and economic conv ergence |
| Date: | 2011–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:nsu:apasro:391&r=eec |
| By: | Strzelecki, Paweł; Wyszynski, Robert |
| Abstract: | The aim of this study is to present the characteristic of present-day migrants and the potential for possible migration after the opening of the labour markets in Austria and Germany. The econometric analysis shows that differences in unemployment rates between sending and receiving countries were the most important for changes in the emigration from Poland in the period 2002-2009. Mostly due to persistence of these differences the intruduction of the open-door policy by two last EU countries in the spring of 2011 can intensify the further emigration flows from Poland. Data concerning the structure of the present emigration in Germany indicate that emigrants from Poland are mainly persons with vocational and secondary education, working primarily in the sections of services (e.g. health care and social assistance, accommodation and catering). There is also a relatively high percentage of persons employed in agriculture and the construction sector. These sectors will probably continue to be the most frequent workplace for emigrants, where the internal supply of work seems insufficient to meet the needs of this part of the German economy. The current limitations push better educated emigrants from Poland to work mainly as specialists in the sectors of economy preferred by Germany or as self-employed persons. The caps applied by German authorities concerning the number of Polish employees on secondment under the framework of the cross-border provision of services remain underused. Moreover, German data (which do not cover persons holding dual nationality) indicate that for the time being emigration from Poland is, to a large extent, circulatory by nature. Examples of other EU countries which already opened their labour markets indicate that the removal of barriers to access may increase emigration in the first year, but the differences and changes in unemployment rates among countries are a much more important factor for migratory flows, particularly at a later stage. The opening of labour markets in Germany and Austria may contribute to a change in the nature of the present short-term to a more permanent migration from Poland. The first part of the study presents information on the existing work limitations for Poles in Germany and the characteristics of the present emigrants from Poland to Germany and Austria. The second part discusses determinants of emigration in 2002-2009, putting a special emphasis on those countries which already managed to open their labour markets for the ‘new’ EU members. The third part delivers the estimates of possible emigration changes from Poland to Germany and Austria that are going to happen after 1 May 2011. |
| Keywords: | labour migration; open-door policy; Poland; Germany; determinants of migration |
| JEL: | F22 J61 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32586&r=eec |
| By: | István Kónya (Magyar Nemzeti Bank (central bank of Hungary)) |
| Abstract: | The paper interprets the growth and convergence experience of three Central-Eastern European economies (the Czech Republic, Hungary, and Poland) through the lens of the stochastic neoclassical growth model. It adapts the methodology of Business Cycle Accounting (Chari, Kehoe and McGrattan 2007) to economies on a transition path. The paper uses the method to uncover distortions (‘wedges’) on the labor and capital markets, and then presents various comparisons and counterfactuals based on them. Results show that (i) capital and labor market distortions vary across the three economies, but they are well within the range of advanced economies; (ii) the Polish and Hungarian labor wedges are high, and the Czech labor wedge increases; (iii) the evolution of Hungarian wedges followed a different path than the evolution of Polish and Czech wedges, and (iv) realistic reductions in the capital and labor wedges would lead to significant output gains for Hungary and Poland. |
| Keywords: | convergence, distortions, Central-Eastern Europe, business cycle accounting |
| JEL: | E13 O11 O47 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2011/6&r=eec |
| By: | Borys, Paweł; Ciżkowicz, Piotr; Rzońca, Andrzej |
| Abstract: | There is growing evidence that fiscal consolidation may contribute to economic growth even in the short term. In this paper we review recent research on such non-Keynesian fiscal policy effects and apply panel data econometric techniques to examine the consequences of fiscal consolidation in the EU New Member States. We extend the analysis to test potential channels through which non-Keynesian effects may operate. The results confirm that composition of the consolidation determines the output response. Moreover, we find evidence that all types of fiscal consolidations stimulate private investments, while export acceleration is observed only when consolidations involve mostly expenditure curtailment. Private consumption reaction to fiscal policy shows signs of nonlinearity - in the case of minor adjustments Keynesian effects dominate, but they are cancelled out when sizable consolidations are considered. |
| Keywords: | fiscal consolidation; non-Keynesian efects; New Member States; panel data |
| JEL: | E62 D81 E32 C23 E23 E44 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32696&r=eec |
| By: | Jean-Baptiste Gossé (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris-Nord - Paris XIII - CNRS : UMR7234); Dominique Plihon (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris-Nord - Paris XIII - CNRS : UMR7234) |
| Abstract: | This article provides insight into the future of financial markets and regulation in order to define what would be the best strategy for Europe. To preserve financial stability, Europe has to choose between financial opening and independently determining how to regulate finance. Among the five scenarios we defined, three achieve financial stability both inside and outside Europe. In terms of market efficiency, the multi-polar scenario is the best and the fragmentation scenario is the worst, since gains of integration depend on the size of the new capital market. Regarding sovereignty of regulation, fragmentation is the best scenario and the multi-polar scenario is the worst because it necessitates coordination at the global level which implies moving further away from respective national preferences. However, the more realistic option seems to be the regionalisation scenario: (i) this level of coordination seems much more realistic than the global one; (ii) the market should be of sufficient size to enjoy substantial benefits of integration. Nevertheless, the "European government" might gradually increase the degree of financial integration outside Europe in line with the degree of cooperation with the rest of the world. |
| Keywords: | Financial Stability, Supervision and Regulation, Financial Integration |
| Date: | 2011–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cepnwp:hal-00613251&r=eec |
| By: | Ponticelli, Jacopo; Voth, Hans-Joachim |
| Abstract: | Does fiscal consolidation lead to social unrest? From the end of the Weimar Republic in Germany in the 1930s to anti-government demonstrations in Greece in 2010-11, austerity has tended to go hand in hand with politically motivated violence and social instability. In this paper, we assemble cross-country evidence for the period 1919 to the present, and examine the extent to which societies become unstable after budget cuts. The results show a clear positive correlation between fiscal retrenchment and instability. We test if the relationship simply reflects economic downturns, and conclude that this is not the key factor. We also analyse interactions with various economic and political variables. While autocracies and democracies show a broadly similar responses to budget cuts, countries with more constraints on the executive are less likely to see unrest as a result of austerity measures. Growing media penetration does not lead to a stronger effect of cut-backs on the level of unrest. |
| Keywords: | demonstrations; Europe; government deficits; instability; public expediture; riots; unrest |
| JEL: | H40 H50 H60 N14 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8513&r=eec |
| By: | Aaron George Grech |
| Abstract: | Spurred by the ageing transition, many governments have made wide-ranging reforms, dramatically changing Europe's pensions landscape. Nevertheless there remain concerns about future costs, while unease about adequacy is growing. This study develops a comprehensive framework to assess pension system sustainability. It captures the effects of reforms on the ability of systems to alleviate poverty and maintain living standards, while setting out how reforms change future costs and relative entitlements for different generations. This framework differs from others, which just look at generosity at the point of retirement, as it uses pension wealth - the value of all transfers during retirement. This captures the impact of both longevity and changes in the value of pensions during retirement. Moreover, rather than focusing only on average earners with full careers, this framework examines individuals at different wage levels, taking account of actual labour market participation. The countries analysed cover 70% of the EU's population and include examples of all system types. Our estimates indicate that while reforms have decreased generosity significantly, in most, but not all, countries the poverty alleviation function remains strong, particularly where minimum pensions have improved. However, moves to link benefits to contributions have made some systems less progressive, raising adequacy concerns for women and those on low incomes. The consumption smoothing function of state pensions has declined noticeably, suggesting the need for longer working lives or additional private saving for individuals to maintain pre-reform living standards. Despite the reforms, the size of entitlements of future generations should remain similar to that of current generations, in most cases, as the effect of lower annual benefits should be offset by longer retirement. Though reforms have helped address the financial challenge faced by pension systems, in many countries pressures remain strong and further reforms are likely. |
| Keywords: | Social Security and Public Pensions, Retirement, Poverty, Retirement Policies |
| JEL: | H55 I38 J26 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:cep:sticas:case140&r=eec |
| By: | Esposito, Piero; Paradiso, Antonio; Rao, B. Bhaskara |
| Abstract: | We analyze possible targets for the French debt-to-GDP ratio with a small model. The role of the US and German GDP growth, prices of raw materials, ECB monetary policy, and domestic policy is analyzed in the debt dynamics. We find that external conditions, together with policies to stimulate growth and to generate a government surplus, play a fundamental role in the French fiscal consolidation. |
| Keywords: | Debt to GDP Ratio; French Economy; International Factors |
| JEL: | E62 H68 H63 |
| Date: | 2011–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32564&r=eec |
| By: | Pablo Hernández de Cos (Banco de España); Mario Izquierdo (Banco de España); Alberto Urtasun (Banco de España) |
| Abstract: | This paper seeks to estimate the potential output of the Spanish economy, using the production function methodology standard in the literature. According to these estimates, the growth of the potential output of the Spanish economy stood at around 3% in the period 2000-2007, owing to the marked increase in the population and in the participation rate and the fall in structural unemployment, as well as vigorous capital accumulation. The contribution of these factors to potential output was reduced by the negative evolution of total factor productivity. In addition, the economic crisis is estimated to have had a significant negative impact on potential output, which has primarily taken the form of a large increase in structural unemployment, a sharp slowdown in population growth, as a consequence of the loss of momentum in immigrant inflows, and a reduction in the contribution of the capital stock resulting from the impact of the crisis on investment. As a result, the potential growth of the Spanish economy stands at around 1% during the crisis years and in the years immediately thereafter, insofar as some of these negative effects take place with a certain time lag. Lastly, in the medium term, the potential output of the economy is estimated to recover progressively, once the effects of the crisis have disappeared, reaching growth rates about 2%, against a background of negative rates of change in the population of age 16-64, a smooth improvement in the NAIRU, a slight recovery in investment and a higher contribution from TFP. The application of a strong process of structural reforms could, however, significantly improve the growth prospects of our economy. |
| Keywords: | Potential output, output gap, Spain |
| JEL: | E23 E32 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:1104&r=eec |
| By: | Esposito, Piero; Paradiso, Antonio; Rao, B. Bhaskara |
| Abstract: | This paper analyses possible patterns for the Spain debt-to-GDP ratio with a small macroeconomic model. The role of international macroeconomic variables (such as the US and French GDP growth rates, prices of raw materials, ECB monetary policy stance) and domestic policy instruments is analyzed in the debt dynamics. We find that external conditions, together with policies aimed to stimulate the growth and fulfilling Maastricht restrictions on deficit, play a fundamental role for fiscal consolidation in Spain and help to reach a sustainable pattern. |
| Keywords: | Debt to GDP Ratio; Spain Economy; International Factors; SUR |
| JEL: | E62 H68 H63 |
| Date: | 2011–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32563&r=eec |
| By: | Ceren Ozgen (VU University Amsterdam); Peter Nijkamp (VU University Amsterdam); Jacques Poot (National Institute of Demographic and Economic Analysis (NIDEA), University of Waikato, Hamilton, New Zealand) |
| Abstract: | The concentration of people with diverse socio-cultural backgrounds in particular geographic areas may boost the creation of new ideas, knowledge spillovers, entrepreneurship, and economic growth. In this paper we measure the impact of the size, skills, and diversity of immigration on the innovativeness of host regions. For this purpose we construct a panel of data on 170 regions in Europe (NUTS 2 level) for the periods 1991-1995 and 2001-2005. Innovation outcomes are measured by means of the number of patent applications per million inhabitants. Given the geographical concentration and subsequent diffusion of innovation activity, and the spatial selectivity of immigrants' location choices, we take account of spatial dependence and of the endogeneity of immigrant settlement in our econometric modelling. We use the location of McDonald's restaurants as a novel instrument for immigration. The results confirm that innovation is clearly a function of regio nal accessibility, industrial structure, human capital, and GDP growth. In addition, patent applications are positively affected by the diversity of the immigrant community beyond a critical minimum level. An increase in the fractionalization index by 0.1 from the regional mean of 0.5 increases patent applications per million inhabitants by about 0.2 percent. Moreover, the average skill level of immigrants (proxied by global regions of origin) also affects patent applications. In contrast, an increasing share of foreigners in the population does not conclusively impact on patent applications. Therefore, a distinct composition of immigrants from different backgrounds is a more important driving force for innovation than the sheer size of the immigrant population in a certain locality. |
| Keywords: | immigration; cultural diversity; economic growth; innovation; spatial autocorrelation |
| JEL: | J61 O31 R23 |
| Date: | 2011–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20110112&r=eec |