nep-eec New Economics Papers
on European Economics
Issue of 2013‒11‒29
twelve papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Surveillance and Control of Fiscal Consolidation on a Supranational Level By Bas van Aarle
  2. The European Banking Disunion By Gros, Daniel
  3. On the Impact of the Global Financial Crisis on the Euro Area By He, Xiaoli; Jacobs, Jan P.A.M.; Kuper, Gerard H.; Ligthart, Jenny E.
  4. The Role of Domestic and External Shocks in Poland: Results from an Agnostic Estimation Procedure By Michal Andrle; Roberto Garcia-Saltos; Giang Ho
  5. The politics of fiscal effort in Spain and Ireland: Market credibility versus political legitimacy By Sebastian Dellepiane; Niamh Hardiman
  6. Identifying and tracking global, EU and Eurozone systemically important banks with public data By Sergio Masciantonio
  7. Fiscal Consolidations and Public Debt in Europe By Gianluca Cafiso; Roberto Cellini
  8. Proposal for a Stabilisation Fund for the EMU By Delbecque, Bernard
  9. Monetary policy and stock market volatility By Bleich, Dirk; Fendel, Ralf; Rülke, Jan-Christoph
  10. Political legitimacy in a non-optimal currency area By Scharpf, Fritz W.
  11. Ita-coin: a new coincident indicator for the Italian economy By Valentina Aprigliano; Lorenzo Bencivelli
  12. The UK's public finances in the long run: the IFS model By Michael Amior; Rowena Crawford; Gemma Tetlow

  1. By: Bas van Aarle
    Abstract: Strengthening budgetary surveillance and coordination of budgetary policy measures in the EU is of vital importance for economic stability and growth. The decentralised decision making structure in most areas of budgetary policies, requires the need to balance national and common objectives; clearly also given the context of highly integrated goods-, labour-, and financial markets that lead to significant interdependencies and spillovers, as e.g. the recent financial crisis and economic slowdown demonstrate. We analyse the progress that is underway in the current budgetary governance framework in the EU -including the recent new instruments in the form of the Macroeconomic Imbalance procedure, the European Semester, Stability Bonds, the European Financial Stability Facility, Euro+ Pact and Europe 2020. This paper surveys supranational governance in the EU, and the coordination of national policies, including concepts of fiscal federalism, multi-level governance and open coordination methods, control and systems methods and macro-finance. We relate this exercise to the current context of budgetary stress in the aftermath of the global financial crisis and economic slowdown which has strongly impacted on the economies and public finances of the Member States. We consider financial market conditions that have exerted a particular strong influence in the European debt crisis and evaluate specifically the merits and risks relating to proposals for the introduction of Eurobonds. We conclude by formulating the policy recommendations on streamlining EU economic and budgetary governance that could be drawn from our analysis.
    Keywords: Academic research, challenges for welfare system, competitiveness, economic strategy, EU integration, European economic policy, European governance, European Monetary Union, Institutional reforms, acroeconomic disequilibria, multi-level governance
    JEL: C70 D70 E30 E60 H60 H70 H80
    Date: 2013–11
  2. By: Gros, Daniel
    Abstract: In this CEPS Commentary Daniel Gros argues that the purpose of the euro was to create fully integrated financial markets; but, since the start of the financial crisis in 2008, markets have increasingly separated along national lines. So the future of the eurozone depends crucially on whether that trend continues or is reversed and Europe’s financial markets in the end become fully integrated. But either outcome would be preferable to something in between – neither fish nor fowl. Unfortunately, that is where the eurozone appears to be headed.
    Date: 2013–11
  3. By: He, Xiaoli (University of Groningen); Jacobs, Jan P.A.M. (School of Economics and Finance, University of Tasmania); Kuper, Gerard H. (University of Groningen); Ligthart, Jenny E. (Tilburg University)
    Abstract: This paper analyses the impact of the Global Financial Crisis on the Euro area utilizing a simple dynamic macroeconomic model with interaction between monetary policy and fiscal policy. The model consists of an IS curve, a Phillips curve, a term structure relation, a debt accumulation equation and a Taylor monetary policy rule supplemented with a Zero Lower Bound, and a fiscal policy rule. The model is calibrated/estimated for EU-16 countries for the period 1980Q1{2009Q4. The impact of the Global Financial Crisis is studied by means of impulse responses following a combined, prolonged aggregate demand and public debt shock. The simulation mimicking the GFC turns out to work fairly well. However, the required size of the shock is quite large.
    Keywords: Global Financial Crisis; euro area; monetary policy; fiscal policy; New Neoclassical Synthesis model; Zero Lower Bound
    JEL: C51 C52 E63
    Date: 2013–10–16
  4. By: Michal Andrle; Roberto Garcia-Saltos; Giang Ho
    Abstract: This paper discusses interlinkages between Poland and the euro zone using a simple and agnostic econometric approach. Specifically, we estimate a trend-cycle VAR model using data for real and nominal variables, imposing powerful but uncontroversial assumptions that allow us to identify how external factors affect the evolution of business cycles in Poland in the period 1999-2012. Our results suggest that developments in the euro zone can explain about 50 percent of poland’s output and interest rate business cycle variance and about 25 percent of the variance of inflation.
    Keywords: External shocks;Poland;Business cycles;Inflation;Interest rates;Exchange rates;Economic models;Poland, euro zone, trend-cycle VAR, external shocks
    Date: 2013–10–29
  5. By: Sebastian Dellepiane (School of Government and Public Policy University of Strathclyde); Niamh Hardiman (School of Politics and International Relations University College Dublin)
    Abstract: Austerity measures in response to Eurozone crisis have tended to be conceived, debated, and implemented as if only the technical parameters of budget management mattered. But policies that impose budgetary hardships on citizens, whether in the form of increased taxes or cuts to public spending go right to the heart of voter expectations about what it is both appropriate and acceptable for governments to do. Pro-cyclical measures that worsen an already difficult situation in a recession run counter to deep-seated norms and expectations in European countries, built up over decades of democratic governance, whereby governments are expected to provide offsetting protection for their citizens against the vicissitudes of the market. If austerity measures are held to be unavoidable in response to market turbulence, and especially if this view is underwritten by international authorities, new challenges of political legitimation are likely to arise. These issues are explored through the experiences of Spain and Ireland.
    Keywords: legitimacy, credibility, Eurozone crisis, Spain, Ireland
    JEL: E43 E62 E63 E65 H12
    Date: 2013–11–26
  6. By: Sergio Masciantonio (Bank of Italy)
    Abstract: This paper develops a methodology for identifying systemically important financial institutions based on that developed by the Basel Committee on Banking Supervision (2011) and used by the Financial Stability Board in its yearly G-SIBs identification. The methodology uses publicly available data to provide fully transparent results with a G-SIBs list that helps to bridge the gap between market knowledge and supervisory decisions. Moreover, the results include a complete ranking of the banks in the sample, according to their systemic importance scores. The methodology is then applied to EU and Eurozone samples of banks to obtain their systemic importance ranking and SIFI lists. This is one of the first methodologies capable of identifying systemically relevant banks at the European level. A statistical analysis and some geographical and historical evidence provide further insight into the notion of systemic importance, its policy implications and the future applications of this methodology.
    Keywords: banks, balance sheets, systemic risk, SIFIs, financial stability, regulation
    JEL: G01 G10 G18 G20 G21 G28
    Date: 2013–10
  7. By: Gianluca Cafiso; Roberto Cellini
    Abstract: The objective of this paper is to gain insights into the relationship between deficit-reducing policies and the evolution of the debt/GDP ratio. We consider past events of fiscal consolidation in a selected group of EU countries and check what is the associated change of the debt/GDP ratio both from a short and medium-term perspective. As for the medium-term perspective, we do also differentiate between tax-based and savings-based fiscal consolidations. Our results point towards a positive short-term effect, while the medium-term effect turns out to be negative. Savingsbased fiscal consolidations result to be less negative on the debt/GDP ratio’s evolution than tax-based ones.
    Keywords: Fiscal consolidations;debt/GDP ratio;Europe
    JEL: H63 E63
    Date: 2013–11
  8. By: Delbecque, Bernard
    Abstract: This paper argues that it should be possible to complement Europe’s Economic and Monetary Union with an insurance-type shock absorption mechanism to increase the resilience of member countries to economic shocks and reduce output volatility. Such a mechanism would neither require the establishment of a central authority, nor would it lead to permanent transfers between countries. For this mechanism to become a reality, however, it would be necessary to overcome certain technical problems linked to the difficulty of anticipating correctly the position of an economy in the business cycle.
    Date: 2013–10
  9. By: Bleich, Dirk; Fendel, Ralf; Rülke, Jan-Christoph
    Abstract: We estimate forward-looking interest rate reaction functions in the spirit of Taylor (1993) for four major central banks augmented by implicit volatilities of stock market indices to proxy financial market stress. Our results suggest that the Bank of England, the Federal Reserve Bank and the European Central Bank systematically respond to an increase of the implicit volatility by a decrease in the interest rate. We take our results as strong evidence that central banks use interest rates to stabilize financial markets in periods of financial market stress. --
    Keywords: Monetary policy,Taylor rule,Asset prices
    JEL: E43 E58 G12
    Date: 2013
  10. By: Scharpf, Fritz W.
    Abstract: On the basis of a brief reconstruction of the causes and impacts of the euro crisis, this paper explores, counterfactually and hypothetically, whether the new euro regime, insisting on fiscal austerity and supply-side reforms, could have prevented the rise of the crisis or is able to deal with its disastrous economic and social impact. A comparison with the likely impact of transfer-based Keynesian reflation suggests that, in both cases, economic success is uncertain, while both approaches are likely to produce severely negative side-effects. In light of such dismal policy choices, attempts to politicize European election campaigns are more likely to provoke unmanageable policy conflict than to overcome the input-oriented, democratic deficit of European economic governance. -- Das Papier analysiert die Ursachen der Eurokrise und fragt dann, kontrafaktisch und hypothetisch, ob das neue, auf fiskalische Konsolidierung und strukturelle Reformen setzende Euro-Regime die Krise hätte vermeiden können oder jetzt geeignet wäre, deren desaströse ökonomische und soziale Folgen zu überwinden. Ein Vergleich mit der Alternative einer keynesianischen Politik der transfergestützten fiskalischen Reflation zeigt, dass in beiden Fällen der ökonomische Erfolg ungewiss bleibt, aber auf jeden Fall mit gravierenden negativen Nebenwirkungen zu rechnen ist. Angesichts derart unerfreulicher Politikoptionen würde der Versuch einer Politisierung der Wahlen zum Europäischen Parlament eher kaum zu bewältigende Richtungs- und Verteilungskonflikte provozieren, als zu einer Überwindung des europäischen Demokratiedefizits beitragen.
    Date: 2013
  11. By: Valentina Aprigliano (Bank of Italy); Lorenzo Bencivelli (Bank of Italy)
    Abstract: In this paper we present a coincident indicator for the Italian economy, Ita-coin. We construct a multivariate filter based on a broad information set, whose dimension is reduced by the Generalized Dynamic Factor Model (GDFM) approach proposed by Forni et al. (2002). A regression based on the least absolute shrinkage and selection operator (LASSO) is used to estimate Ita-coin. Most Italian macroeconomic indicators are characterized by high short-term volatility and the 2008-2009 crisis has affected the volatility of both the high- and low-frequency components and the relationships between the variables have become more unstable. LASSO regression allows us to select recursively the relevant information about the comovement of the variables over time. Our indicator displays a satisfactory performance in the pseudo real-time validation as a timely cyclical indicator.
    Keywords: Factor analysis, frequency-domain, LASSO regression, business cycle.
    JEL: C5 E1
    Date: 2013–10
  12. By: Michael Amior (Institute for Fiscal Studies); Rowena Crawford (Institute for Fiscal Studies); Gemma Tetlow (Institute for Fiscal Studies)
    Abstract: This working paper describes how the IFS’s model of the UK’s long-run public finances (and those of its constituent nations) is constructed. Our model projects tax revenues, public spending and hence public borrowing and debt up to 2062–63. This is done for the UK as a whole and also separately for Scotland and the rest of the UK. The type of model we have built seeks to answer questions of the type ‘is current fiscal policy sustainable without additional taxes needing to be raised or cuts to public spending imposed either now or in the future?’.
    Date: 2013–11

This nep-eec issue is ©2013 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.