nep-eec New Economics Papers
on All new papers
Issue of 2014‒09‒08
seven papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. "The Euro Treasury Plan" By Jorg Bibow
  2. Debt Redemption Fund: Conditio Sine Qua Non? Government Bonds in the Euro Area Crisis By Silke Tober
  3. Hypnosis Before Wake-up Call? The Revival of Sovereign Credit Risk Perception in the EMU-Crisis By Ingo G. Bordon; Kai Daniel Schmid; Michael Schmidt
  4. Yes Virginia, There is a European Banking Union! But It May Not Make Your Wishes Come True By Martin F. Hellwig
  5. Fiscal Contractions in Eurozone in the Years 1995-2013. Can Non-Keynesian Effects Be Helpful in Future Deleverage Process? By Adam P. Balcerzak; Michal Bernard Pietrzak; Elzbieta Rogalska
  6. The Debt Brake in the Eyes of the German Population By Bernd Hayo; Florian Neumeier
  7. Macroprudential Policy Tools in Norway: Strengthening Financial System Resilience By Yosuke Jin; Patrick Lenain; Paul O'Brien

  1. By: Jorg Bibow
    Abstract: Contrary to German chancellor Angela Merkel's recent claim, the euro crisis is not nearly over but remains unresolved, leaving the eurozone extraordinarily vulnerable to renewed stresses. In fact, as the reforms agreed to so far have failed to turn the flawed and dysfunctional euro regime into a viable one, the current calm in financial markets is deceiving, and unlikely to last. The euro regime's essential flaw and ultimate source of vulnerability is the decoupling of central bank and treasury institutions in the euro currency union. In this public policy brief, Research Associate Jorg Bibow proposes a Euro Treasury scheme to properly fix the regime and resolve the euro crisis. The Euro Treasury would establish the treasury-central bank axis of power that exists at the center of control in sovereign states. Since the eurozone is not actually a sovereign state, the proposed treasury is specifically designed not to be a transfer union; no mutualization of existing national public debts is involved either. The Euro Treasury would be the means to pool future eurozone public investment spending, funded by proper eurozone treasury securities, and benefits and contributions would be shared across the currency union based on members' GDP shares. The Euro Treasury would not only heal the euro's potentially fatal birth defects but also provide the needed stimulus to end the crisis in the eurozone.
    Date: 2014–08
  2. By: Silke Tober
    Abstract: Fiscal austerity has not led to a return of confidence and it is not at all certain that the current crisis strategy can be sustained politically and will eventually succeed. Government bonds of crisis-hit countries have lost their safe asset status and high risk premiums are impairing monetary transmission. Within its mandate the ECB is in principal able to do what it takes to put an end to this crisis, but only if euro area governments tow the same line. A well-designed debt redemption fund could restore confidence and enhance growth by repairing the monetary transmission mechanism and allowing the expansionary monetary policy of the ECB to reach the crisis-hit countries. Combined with additional policies to foster growth and rebalancing in the euro area, a temporary debt redemption fund could be instrumental in engineering an economic turn-around. The paper touches upon the recent OMT-decision of the German Federal Constitutional Court, euro(basket)bonds and eurobills.
    Keywords: Debt Redemption Fund, OMT, safe assets, TARGET2, constitutional court, current account imbalances
    Date: 2014
  3. By: Ingo G. Bordon; Kai Daniel Schmid; Michael Schmidt
    Abstract: This paper qualifies the view of pronounced overpricing of sovereign bonds for the so-called GIIPS countries during the nancial crisis. We use annual data for 21 OECD countries from 1980 to 2012. As opposed to related studies, our data set allows us to contrast the pricing of macroeconomic fundamentals between three distinct phases: The period before the signing of the Maastricht treaty, the EMUconvergence era, and the financial crisis. In detail, we find: (i) Since the 1980s the role of public debt for the pricing of government bonds has changed twice: Firstly following the signing of the Maastricht treaty, and again with the wake-up call due to the onset of the financial crisis. (ii) Before the financial crisis EMU member countries had - de facto - been perceived as a homogenous group with regard to the role of public debt for sovereign risk pricing. (iii) With the reconsideration of country-specfic fundamentals the role of public debt has not only been revived but its impact upon bond yield spreads has become comparable to the time before the Maastricht treaty.
    Keywords: EMU, GIIPS, Public Debt, Risk Perception, Sovereign Bond Yields
    JEL: E44 E62
    Date: 2014
  4. By: Martin F. Hellwig (Max Planck Institute for Research on Collective Goods)
    Abstract: The paper discusses the prospects for European Banking Union as they appear in the summer of 2014. The first part gives an overview over the problems that gave rise to the Banking Union initiative, the second part discusses the legislative measures that have been taken towards this objective. The euro area is currently suffering from low growth, high indebtedness of private households and firms, banks, and governments, and the weakness of financial institutions. Weakness of financial institutions affects the economy not only in countries with outright banking crises and sovereign debt crises, but also in some of the core countries that so far have seemed more stable. ECB policies have so far stabilized the system without solving the underlying problems. At the national level, political will to solve the underlying problems is missing; most governments prefer procrastination over cleanups, some governments do not have the funds to recapitalize the banks of their countries, and some governments like their banks to borrow from the ECB and lend to them. The European Banking Union comes with a promise of reducing cross-border externalities in dealing with banks. However, the Single Supervisory Mechanism is hampered by the need to apply national laws that implement European directives; this makes for fragmentation even if the ECB is in charge. Moreover, procedures for the recovery and resolution of institutions in difficulties are problematic: If banks with systemically important operations in several countries enter into resolution, there is no way to prevent the breakdown of these operations and to limit the resulting systemic damage. Further, the legislation makes no provisions for the liquidity needed for maintaining systemically important operations at least temporarily. Finally, there is no fiscal backstop. Because of the deficiencies, the “too-big-to-fail” syndrome is still present. In view of the many legacy problems, this issue is critical. If the European Banking Union is to work, further reforms will be needed shortly.
    Keywords: European Central Bank, Banking Supervision, bank resolution, European Banking Union, too-big-to-fail, sovereign debt
    JEL: G21 G28 E58 H63 F55
    Date: 2014–08
  5. By: Adam P. Balcerzak (Nicolaus Copernicus University, Poland); Michal Bernard Pietrzak (Nicolaus Copernicus University, Poland); Elzbieta Rogalska (University of Warmia and Mazury, Poland)
    Abstract: Last global financial crisis has led to massive fiscal stimulation actions in most of developed countries which resulted in significant increase of their public debt. For many economists current level of debt in case of many highly developed countries is coming up to unsustainable level or at least level that has negative consequences on the long term growth. This can be also said about Eurozone or wider EU economies. This factors in near future will force many EU countries to adopt much stricter middle and long term fiscal policy that will be necessary for deleveraging process. In this context the aim of the research is to check whether can one find non-Keynesian effects of fiscal consolidations in Eurozone countries in last decade. If the answer is positive, then could these non-Keynesian effects be significant developing factor in case of Eurozone countries. The third scientific question concentrates on the ways the fiscal consolidations were implemented and the potential influence of consolidations strategies on short term growth. The research is based on European Commission and Eurostat fiscal and macroeconomic data for Eurozone countries for the years 1995-2013. In the research the econometric dynamic panel model based on the concept of conditional convergence was applied. As a complementary method qualitative analysis of cases of significant contractions was made with the concentration on the differences between expansionary thus non-Keynesian cases and conventional Keynesian cases of fiscal contractions. The research results give some arguments for existence of fiscal transitions channels leading to non-Keynesian effects of fiscal policy, which in the same time can be a factor of conditional convergence. Thus in case of proper construction of fiscal consolidations polices these factors can be helpful in future deleverage process.
    Keywords: fiscal policy, fiscal consolidations, non-Keynesian effects, conditional convergence
    JEL: H3
    Date: 2014–08
  6. By: Bernd Hayo (University of Marburg); Florian Neumeier (University of Marburg)
    Abstract: In response to the recent sovereign debt crisis, the member states of the European Union agreed to enact balanced budget rules in their national legislation. However, little is known about the public’s opinion of balanced budget rules. To fill this gap, we conducted a survey among 2,000 representatively chosen German citizens. Our findings suggest that 61% of the German population supports the debt brake, whereas only 8% oppose it. However, approval rates differ notably among various subgroups of the population. The debt brake enjoys greater support among high-income earners and among those well-informed about the future costs of deficit spending. People who do not trust politicians would like to see the government’s hands tied even more tightly. Opinions about the debt brake also differ markedly across the supporters of different political parties.
    Keywords: Debt brake; balanced budget rule; European Fiscal Compact; survey; Germany
    JEL: E02 E62 H62 H63
    Date: 2014
  7. By: Yosuke Jin; Patrick Lenain; Paul O'Brien
    Abstract: In Norway house prices have risen to high levels, associated with very strong credit growth, in a context of low interest rates. Such a combination was in many countries a contributory factor to the 2008- 09 crisis. The Norwegian authorities have been well aware of the problem. Below-target inflation and low interest rates abroad have kept policy interest rates low. “Macro-prudential” tools have been developed as additional policy instruments with a view to strengthen the banking system’s resilience to possible shocks and dampen systemic risk. This chapter notes that although authorities seem to have succeeded in containing over-heating pressures in the housing market, high levels of household indebtedness persist, a phenomenon which was an important factor in the last major Norwegian recession. The chapter also provides some longer run considerations on resource allocation in the housing market. This Working Paper relates to the 2014 OECD Economic Survey of Norway ( Les instruments macroprudentiels en Norvège : Renforcer la résilience du système financier En Norvège, les prix des logements ont atteint des niveaux élevés ; parallèlement, le crédit a connu une très forte hausse, sur fond de taux d’intérêt faibles. Dans de nombreux pays, cette conjonction a contribué à la crise de 2008-09. Les autorités norvégiennes sont bien conscientes de ce problème. L’inflation étant inférieure à l’objectif et les taux d’intérêt étant modestes à l’étranger, les taux directeurs sont restés à un niveau très bas. Les pouvoirs publics ont élaboré, en plus de leur panoplie traditionnelle, des instruments « macroprudentiels » visant à renforcer la résilience du système bancaire face à des chocs éventuels et à atténuer le risque systémique. On verra dans le présent chapitre que si les autorités ont semble-t-il réussi à contenir les risques de surchauffe sur le marché de l’immobilier, l’endettement des ménages reste très élevé ; or, ce phénomène avait joué un rôle important lors de la dernière grande récession qu’a connue la Norvège. Le présent chapitre contient également des considérations à plus long terme concernant l’affectation des ressources sur le marché de l’immobilier. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de Norvège 2014 ( ique-norvege.htm).
    Keywords: Norway, financial stability, macroprudential policy, real estate market, marché de l'immobilier, politique macroprudentielle, Norvège, stabilité financière
    JEL: E51 G18 G21 G28 H2 R31 R38
    Date: 2014–06–11

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