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on European Economics |
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Issue of 2013‒08‒23
twenty-two papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Macchiarelli, Corrado |
| Abstract: | In this paper we look at business cycles similarities between CEE countries and the euro area. Particularly, we uncover GDP-inflation cycles by adopting a trend-cycle decomposition model which allows the trend to be either stochastic or deterministic i.e. of the non-linear type. Once cyclical components are derived, we test for ex post restrictions at both with-in (GDP-to-inflation) and cross-country (CEECs vs. euro area) levels. Allowing for different degrees of cyclical similarity, we find that a similar inflation vs. GDP cycle is not rejected only for Poland, Lithuania, Romania and Estonia (with Latvia and the euro area being at the boundary). Looking at cross-country results, almost all countries feature a fair degree of similarity with respect to the euro area. Exceptions are Poland, Hungary, Latvia and Slovenia because of lack of a similar cycle either occurring in GDP or inflation, yet not in both. Finally, observing how concurrence between each CEECs cycle and the euro area evolved over time, we find that inflation conditional correlation increased stemming from the EU accession of most CEECs and as a result of the commodity price shock preceding 2008. Further, inflation and GDP conditional correlations receded during the course of 2009-2010, possibly resulting from more idiosyncratic adjustments in the aftermath of the crisis on the monetary/fiscal side. Interestingly, Slovenia, Slovakia, Estonia and Bulgaria display a conditional correlation pattern in GDP and inflation which roughly suggest a strong out-of-phase recovery starting from 2005. JEL Classification: C51, E31, E32, F43, F44 |
| Keywords: | business cycle, CEECs, convergence, euro area, Inflation-GDP gaps |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131552&r=eec |
| By: | Ciccarelli, Matteo; Maddaloni, Angela; Peydró, José-Luis |
| Abstract: | The Euro area economic activity and banking sector have shown substantial fragility over the last years with remarkable country heterogeneity. Using detailed data on lending conditions and standards, we analyse how financial fragility has affected the transmission mechanism of the single Euro area monetary policy during the crisis until the end of 2011. The analysis shows that the monetary transmission mechanism has been time-varying and influenced by the financial fragility of the sovereigns, banks, firms and households. The impact of monetary policy on aggregate output is stronger during the financial crisis, especially in countries facing increased sovereign financial distress. This amplification mechanism, moreover, operates mainly through the credit channel, both the bank lending and the non-financial borrower balance-sheet channel. Our results suggest that the bank-lending channel has been partly mitigated by the ECB nonstandard monetary policy interventions. At the same time, when looking at the transmission through banks of different sizes, it seems that, until the end of 2011, the impact of credit frictions of borrowers have not been significantly reduced, especially in distressed countries. Since small banks tend to lend primarily to SME, we infer that the policies adopted until the end of 2011 might have fall short of reducing credit availability problems stemming from deteriorated firm net worth and risk conditions, especially for small firms in countries under stress. JEL Classification: E44, E52, E58, G01, G21, G28 |
| Keywords: | credit channel, financial crisis, heterogeneity, monetary policy, non-standard measures |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131527&r=eec |
| By: | Ehrmann, Michael; Osbat, Chiara; Stráský, Jan; Uusküla, Lenno |
| Abstract: | This paper studies the determinants of the euro exchange rate during the European sovereign debt crisis, allowing a role for macroeconomic fundamentals, policy actions and the public debate by policy makers. It finds that the euro exchange rate mainly danced to its own tune, with a particularly low explanatory power for macroeconomic fundamentals. Among the few factors that are found to have affected changes in exchanges rate levels are policy actions at the EU level and by the ECB. The findings of the paper also suggest that financial markets might have been less reactive to the public debate by policy makers than previously feared. Still, there are instances where exchange rate volatility was increasing in response to news, such as on days when several politicians from AAA-rated countries went public with negative statements, suggesting that communication by policy makers at times of crisis should be cautious about triggering undesirable financial market reactions. JEL Classification: E52, E62, F31, F42, G14 |
| Keywords: | announcements, Exchange Rates, fundamentals, sovereign debt crisis |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131532&r=eec |
| By: | Angelopoulou, Eleni; Balfoussia, Hiona; Gibson, Heather |
| Abstract: | In this paper we construct Financial Conditions Indices (FCIs) for the euro area, for the period 2003 to 2011, using a wide range of prices, quantities, spreads and survey data, grounded in the theoretical literature. One FCI includes monetary policy variables, while two versions without monetary policy are also constructed, enabling us to study the impact of monetary policy on financial conditions. The FCIs constructed fit in well with a narrative of financial conditions since the creation of the monetary union. FCIs for individual euro area countries are also provided, with a view to comparing financial conditions in core and periphery countries. There is evidence of significant divergence both before and during the crisis, which becomes less pronounced when monetary policy variables are included in the FCI. However, the impact of monetary policy on financial conditions appears not to be entirely symmetric across the euro area. JEL Classification: E52, E51, E61, E63, E65 |
| Keywords: | financial conditions, financial crisis, monetary policy |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131541&r=eec |
| By: | Afonso, António; Toffano, Priscilla |
| Abstract: | We assess the existence of fiscal regime shifts in the U.K., Germany, and Italy, using Markov switching fiscal rules. On the basis of a newly built quarterly data set, our results show the existence of fiscal regimes shifts, sometimes coupled with regime switches also regarding monetary developments. While in the UK “active” and “passive” (Leeper, 1991) fiscal regimes are somewhat clearer cut, in Germany fiscal regimes have been overall less active, supporting more fiscal sustainability. For Italy, a more passive fiscal behaviour is uncovered in the run-up to EMU. JEL Classification: C22, E62, H62 |
| Keywords: | EU, fiscal regimes, Markov-switiching |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131529&r=eec |
| By: | Angelini, Elena; Dieppe, Alistair; Pierluigi, Beatrice |
| Abstract: | In this paper we show that higher flexibility, measured by lower wage and price mark-ups leads to reduced inflationary pressures, increase in competitiveness, and higher output. A rational expectation and a learning version of the ECB’s New Multi-Country Model are used to understand plausible dynamics of labour cost and price adjustments. In the rational expectation version of the model gains are quicker but more short-lived than in a learning environment. We argue that a rational expectation model appears appropriate to describe the abrupt wage adjustment which took place in the Baltic States. By contrast, a learning model appears better suited to capture the gradual wage adjustment of Germany during the 2000s and the one that started in Spain and Italy after the 2008-09 crisis. In fact, in view of implementation lags and the need to change institutions, in the above countries the adjustment should be expected to deliver output gains less quickly than in the Baltic States. In this paper we use the linked version of the model to evaluate the aggregate impact of the imposed shocks as well as possible spillover effects within the euro area. All in all, spillover effects are relatively small. JEL Classification: E24, E27, E30, E37, J30 |
| Keywords: | competitiveness, nominal adjustment in a monetary union, price and wage mark-ups, rational and learning expectations, Unit labour costs |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131512&r=eec |
| By: | Ashoka Mody |
| Abstract: | To compensate for the inflexibility of fixed exchange rates, the euro area needs flexibility through a system of orderly debt restructuring. With virtually no room for macroeconomic manoeuvring since the crisis onset, fiscal austerity has been the main instrument for achieving reductions in public debt levels; but because austerity also weakens growth, public debt ratios have barely budged. Austerity has also implied continued high private debt ratios. And these debt burdens have perpetuated economic stasis. Economic theory,history, and the recent experience all call for a principled debt restructuring mechanism as an integral element of the euro areaâ??s design. Sovereign debt should be recognised as equity (a residual claim on the sovereign), operationalised by the automatic lowering of the debt burden upon the breach of contractually-specified thresholds. Making debt more equity-like is also the way forward for speedy private deleveraging. This debt-equity swap principle is a needed shock absorber for the future but will also serve as the principle to deal with the overhang of â??legacyâ?? debt. |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:788&r=eec |
| By: | Cour-Thimann, Philippine; Winkler, Bernhard |
| Abstract: | This paper aims to make two contributions: to review the ECB’s non-standard monetary policy measures in response to the financial and sovereign debt crisis against the background of the institutional framework and financial structure of the euro area; and to interpret this response from a flow-of-funds perspective. The paper highlights how the rationale behind the ECB’s nonstandard measures differs from that underlying quantitative easing policies. As a complement to rather than a substitute for standard interest rate decisions, the non-standard measures are aimed at supporting the effective transmission of monetary policy to the economy rather than at delivering additional direct monetary stimulus. The flow-of-funds analysis proposes an interpretation of central banks’ crisis responses as fulfilling their traditional role as lender of last resort to the banking system and, more broadly, reflecting their capacity to act as the “ultimate sector” that can take on leverage when other sectors are under pressure to deleverage. It also provides examples that trace the impact of non-standard measures across different sectors and markets. JEL Classification: E02, E40, E50, E58 |
| Keywords: | asset purchases, Economic and Monetary Union, financial structure, flow of funds, monetary policy, sovereign debt crisis |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131528&r=eec |
| By: | De Santis, Roberto A.; Surico, Paolo |
| Abstract: | To what extent does the availability of credit depend on monetary policy? And, does this relationship vary with bank characteristics? Based on a common source of balance sheet data for the four largest economies of the euro area over the period 1999-2011, we uncover three main regularities. First, the effect of monetary policy on bank lending is significant and heterogeneous in Germany and Italy, which are characterised by a large number of banks; but it is very weak in Spain and more homogeneous in France, where the banking industry has a higher degree of market concentration. Second, there is some evidence that monetary policy exerts larger effects on cooperative and savings banks with lower liquidity and less capital in Germany and savings banks with smaller size in Italy. Third, heterogeneity across groups of banks belonging to the same category in any particular country is found to be less pronounced. JEL Classification: C33, E44, E52, G21 |
| Keywords: | commercial, cooperative, credit availability, heterogeneous effects, monetary policy, savings banks |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131568&r=eec |
| By: | Maddaloni, Angela; Peydró, José-Luis |
| Abstract: | We analyze the impact on lending standards of short-term interest rates and macroprudential policy before the 2008 crisis, and of the provision of central bank liquidity during the crisis. Exploiting the euro area institutional setting for monetary and prudential policy and using the Bank Lending Survey, we show that in the period prior to the crisis, in an environment of low monetary policy interest rates, bank lending conditions unrelated to borrowers’ risk were softened. During the same period, we also provide some suggestive evidence of excessive risktaking for mortgages loans. At the same time, we show that the impact of low monetary policy rates on the softening of standards may be reduced by more stringent prudential policies on either bank capital or loan-to-value ratios. After the start of the 2008 crisis, we find that low monetary rates helped to soften lending conditions that were tightened because of bank capital and liquidity constraints, especially for business loans. Importantly, this softening effect is stronger for banks that borrow more long-term liquidity from the Eurosystem. Therefore, the results suggest that monetary policy rates and central bank provision of long-term liquidity complement each other in working against a possible credit crunch for firms. JEL Classification: E51, E52, E58, G01, G21, G28 |
| Keywords: | banking stability, Macroprudential policy, monetary policy |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131560&r=eec |
| By: | Alter, Adrian; Beyer, Andreas |
| Abstract: | In this paper we develop empirical measures for the strength of spillover effects. Modifying and extending the framework by Diebold and Yilmaz (2011), we quantify spillovers between sovereign credit markets and banks in the euro area. Spillovers are estimated recursively from a vector autoregressive model of daily CDS spread changes, with exogenous common factors. We account for interdependencies between sovereign and bank CDS spreads and we derive generalised impulse response functions. Specifically, we assess the systemic effect of an unexpected shock to the creditworthiness of a particular sovereign or country-specific bank index to other sovereign or bank CDSs between October 2009 and July 2012. Channels of transmission from or to sovereigns and banks are aggregated as a Contagion index (CI). This index is disentangled into four components, the average potential spillover: i) amongst sovereigns, ii) amongst banks, iii) from sovereigns to banks, and iv) vice-versa. We highlight the impact of policy-related events along the different components of the contagion index. The systemic contribution of each sovereign or banking group is quantified as the net spillover weight in the total net-spillover measure. Finally, the captured time-varying interdependence between banks and sovereigns emphasises the evolution of their strong nexus. JEL Classification: C58, G01, G18, G21 |
| Keywords: | CDS, Contagion, Impulse responses, sovereign debt, systemic risk |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131558&r=eec |
| By: | Vespignani, Joaquin L.; Ratti, Ronald A. |
| Abstract: | There are marked differences in the effect of increases in monetary aggregates in China, Japan and the U.S. on Euro area economic and financial variables over 1999-2012. Increases in monetary aggregates in China are associated with significant increases in the world price of commodities and with increases in Euro area inflation, industrial production and exports. Results are consistent with shocks to China’s M2 facilitating domestic growth with expansionary consequences for the Euro area economy. In contrast, increases in monetary aggregates in Japan are associated with significant appreciation of the Euro and decreases in Euro area industrial production and exports. Production of goods highly competitive with European goods in Japan and expenditure switching in Japan are consistent with the results. U.S. monetary expansion has relatively small effects on the Euro area over this period compared to results reported in the literature for earlier sample periods. |
| Keywords: | International monetary transmission, China’s monetary aggregates, Euro area Commodity prices |
| JEL: | E52 E58 F31 F42 |
| Date: | 2013–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49153&r=eec |
| By: | Carpenter, Seth; Demiralp, Selva; Eisenschmidt, Jens |
| Abstract: | A growing number of studies have sought to measure the effects of non-standard policy on bank funding markets. The purpose of this paper is to carry those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending, using a simultaneous equation approach. By separately modeling loan supply and demand, we determine how nonstandard central bank measures affected bank lending by reducing stress in bank funding markets. We focus on the Federal Reserve and the European Central Bank. Our results suggest that non-standard policy measures lowered bank funding volatility. Lower bank funding volatility in turn increased loan supply in both regions, contributing to sustain lending activity. We consider this as strong evidence for a “bank liquidity risk channel”, operative in crisis environments, which complements the usual channels of transmission of monetary policy. JEL Classification: E58, G32, G21 |
| Keywords: | bank funding volatility, bank lending, non-standard policy |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131562&r=eec |
| By: | Stracca, Livio |
| Abstract: | This paper is an event study focusing on the global effects of the euro debt crisis in 2010-2013. After identifying 18 key exogenous crisis events, I analyse the impact on equity returns, exchange rates and government bond yields in 12 advanced and 13 emerging countries. The main effect of euro debt crisis events is a rise in global risk aversion accompanied by fall in equity returns, in particular in the …financial sector, in advanced countries (but not in emerging countries). The effect on bond yields is not statistically significant for the whole set of countries, but is significant and negative for key advanced countries such as the US and the UK. The paper also analyse the transmission channels by looking at how pre-crisis country characteristics influence the strength and direction of the spill-over, concluding that the transmission hinges more on trade than on fi…nance. JEL Classification: F3 |
| Keywords: | Contagion, Euro debt crisis, global risk aversion, spill-over |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131573&r=eec |
| By: | Villa, Stefania |
| Abstract: | This paper compares from a Bayesian perspective three dynamic stochastic general equilibrium models in order to analyse whether financial frictions are empirically relevant in the Euro Area (EA) and, if so, which type of financial frictions is preferred by the data. The models are: (i) Smets and Wouters (2007) (SW); (ii) a SW model with financial frictions originating in non-financial firms à la Bernanke et al. (1999), (SWBGG); and (iii) a SW model with financial frictions originating in financial intermediaries, à la Gertler and Karadi (2011), (SWGK). The comparison between the three estimated models is made along different dimensions: (i) the Bayes factor; (ii) business cycle moments; and (iii) impulse response functions. The analysis of the Bayes factor and of simulated moments provides evidence in favour of the SWGK model. This paper also finds that the SWGK model outperforms the SWBGG model in forecasting EA inflationary pressures in a Phillips curve specification. JEL Classification: C11, E44 |
| Keywords: | Bayesian estimation, DSGE Models, Financial Frictions |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131521&r=eec |
| By: | Fulli-Lemaire, Nicolas |
| Abstract: | The admission by the Greek government on October 18, 2009, of large-scale accounting fraud in its national accounts sparked an unprecedented sovereign debt crisis that rapidly spread to the Eurozone’s weakest member states. As the crisis increasingly drove a wedge between a seemingly resilient Eurozone core and its faltering periphery, its first collateral victims were the private banks of the hardest-hit sovereigns. They were rapidly followed by the rest of the Eurozone’s banks as a result of their large exposure to not only their home country’s sovereign debt, but also to the debt securities of other member states. Measuring each bank’s precise exposure to every sovereign issuer became a key issue for credit analysis in the attempt to assess the potential impact of a selective sovereign default if worse came to worst. Yet finding that information in a timely manner is hardly an easy task, as banks are not required to disclose it. Building on the efficient market hypothesis in the presence of informed traders, we tested the sensitivity of each of the largest Eurozone private banks’ CDSs to sovereign CDSs using a simple autoregressive model estimated by time-series regressions and panel regressions, comparing the results to news releases to assess its reliability. Eventually, we used the Oaxaca Blinder decomposition to measure whether the unconventional monetary policies, namely the LTRO and the OMT, that the ECB has implemented to stem the crisis have helped banks directly or whether banks were actually helped by the reduction in sovereign CDS spreads. |
| Keywords: | Private Banks, Central Banks, Sovereign Debt Risk, OMT, LTRO, Non-Conventional Monetary Policies, Eurozone’s Sovereign Debt Crisis, Oaxaca-Blinder Decomposition. |
| JEL: | C58 D82 E52 G01 G14 G15 G21 G24 N14 |
| Date: | 2013–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49072&r=eec |
| By: | Saldías, Martín |
| Abstract: | In a panel data framework applied to Portfolio Distance-to-Default series of corporate sectors in the euro area, this paper evaluates systemic and idiosyncratic determinants of default risk and examines how distress is transferred in and between the financial and corporate sectors since the early days of the euro. This approach takes into account observed and unobserved common factors and the presence of different degrees of cross-section dependence in the form of economic proximity. This paper contributes to the financial stability literature with a contingent claims approach to a sector-based analysis with a less dominant macro focus while being compatible with existing stress-testing methodologies in the literature. A disaggregated analysis of the different corporate and financial sectors allows for a more detailed assessment of specificities in terms of risk pro file, i.e. heterogeneity of business models, risk exposures and interaction with the rest of the macro environment. JEL Classification: G01, G13, C31, C33 |
| Keywords: | common correlated effects, contingent claims analysis, macro-prudential analysis, Portfolio credit risk measurement |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131574&r=eec |
| By: | Smets, Frank; Warne, Anders; Wouters, Raf |
| Abstract: | This paper analyses the real-time forecasting performance of the New Keynesian DSGE model of Galí, Smets, and Wouters (2012) estimated on euro area data. It investigates to what extent forecasts of inflation, GDP growth and unemployment by professional forecasters improve the forecasting performance. We consider two approaches for conditioning on such information. Under the “noise” approach, the mean professional forecasts are assumed to be noisy indicators of the rational expectations forecasts implied by the DSGE model. Under the “news” approach, it is assumed that the forecasts reveal the presence of expected future structural shocks in line with those estimated over the past. The forecasts of the DSGE model are compared with those from a Bayesian VAR model and a random walk. JEL Classification: E24, E31, E32 |
| Keywords: | Bayesian methods, DSGE model, estimated New Keynesian model, macroeconomic forecasting, real-time data, survey data |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131571&r=eec |
| By: | Mortensen, Jørgen |
| Abstract: | This paper first takes a step backwards with an attempt to situate the recent adoption of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union in the context of discussions on the Stability and Growth Pact (SGP) and the ‘Maastricht criteria’, as fixed in the Maastricht Treaty for membership in the Economic and Monetary Union (EMU) in a longer perspective of the sharing of competences for macroeconomic policy-making within the EU. It then presents the main features of the new so-called ‘Fiscal Compact’ and its relationship to the SGP and draws some conclusions as regards the importance and relevance of this new step in the process of economic policy coordination. It concludes that the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union does not seem to offer a definitive solution to the problem of finding the appropriate budgetary-monetary policy mix in EMU, which was already well identified in the Delors report in 1989 and regularly emphasised ever since and is now seriously aggravated due to the crisis in the eurozone. Furthermore, implementation of this Treaty may under certain circumstances contribute to an increase in the uncertainties as regards the distribution of the competences between the European Parliament and national parliaments and between the former and the Commission and the Council. |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:eps:cepswp:8310&r=eec |
| By: | Juillard, M.; Le Bihan, H.; Millard, S. |
| Abstract: | In many countries, wage changes tend to be clustered in the beginning of the year, with wages being set for fixed durations of typically one year. This has been, in particular, documented in recent years for European countries using microeconomic data. Motivated by this evidence we build a model of uneven wage staggering, embedded in a standard DSGE model of the euro area, and investigate the monetary policy consequences of non-synchronised wage-setting. The model has the potential to generate responses to monetary policy shocks that differ according to the timing of the shock. Using a realistic calibration of the seasonality in wage-setting, based on a wide survey of European firms, the quantitative difference across quarters turns out however to be moderate. Relatedly, we obtain that the optimal monetary policy rule does not vary much across quarters. |
| Keywords: | wage-setting, wage-staggering, wage synchronisation, monetary policy shocks, optimal simple monetary policy rules. |
| JEL: | E27 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:442&r=eec |
| By: | Corbo, Vesna; Osbat, Chiara |
| Abstract: | We estimate the elasticity of substitution of a country’s imports, and that of its exports on the world market, for EU countries using sector level trade data. We present a new empirical strategy based on the identification scheme by Feenstra (1994), which enables the estimation of elasticities from data on exports. Moreover, our use of bootstrap methods allows us to obtain better elasticity measures, and to better characterize their accuracy. Our results show much heterogeneity in the estimates of the elasticity of substitution across industrial sectors. This, in turn, points to heterogeneity across countries, due to different production and trade structures. We obtain aggregate elasticities for the EU27 countries, with a mean of 3.5 for imports and 4.0 for exports, bringing us closer to traditional estimates and bridging the gap between the newer micro data estimates and the more traditional estimates found in the macroeconomic literature. JEL Classification: C23, F14, F47 |
| Keywords: | Aggregation, calibration of macroeconomic models, Elasticity of Substitution, heterogeneity |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131535&r=eec |
| By: | Jeromin Zettelmeyer (Peterson Institute for International Economics); Christoph Trebesch (University of Munich); Mitu Gulati (Duke University) |
| Abstract: | The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief—over 50 percent of 2012 GDP—with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. But it did so at a cost. The timing and design of the restructuring left money on the table from the perspective of Greece, created a large risk for European taxpayers, and set precedents—particularly in its very generous treatment of holdout creditors—that are likely to make future debt restructurings in Europe more difficult. |
| Keywords: | debt restructuring, eurozone crisis, financial crises, Greece, sovereign debt, sovereign default |
| JEL: | F34 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp13-8&r=eec |