Managing Risks in the European Periphery Debt Crisis: Lessons from the Trade-off between Economics, Politics and the Financial Markets

299 Pages·2015·10.437 MB·English

by  George Christodoulakis

Managing Risks in the European Periphery Debt Crisis
0011__99778811113377330044994400__PPrreelliimmss..iinndddd ii 1122//33//22001144 33::4488::4466 PPMM
Also by George Christodoulakis
Th e Analytics of Risk Model Validation (edited with Stephen Satchell)
0011__99778811113377330044994400__PPrreelliimmss..iinndddd iiii 1122//33//22001144 33::4488::4477 PPMM
Managing Risks in the
European Periphery Debt
Crisis
Lessons from the Trade-Off between
Economics, Politics and the Financial Markets
Edited by
George Christodoulakis
0011__99778811113377330044994400__PPrreelliimmss..iinndddd iiiiii 1122//33//22001144 33::4488::4477 PPMM
Editorial matter and selection © George Christodoulakis 2015
Remaining chapters © Respective authors 2015
All rights reserved. No reproduction, copy or transmission of this
publication may be made without written permission.
No portion of this publication may be reproduced, copied or transmitted
save with written permission or in accordance with the provisions of the
Copyright, Designs and Patents Act 1988, or under the terms of any licence
permitting limited copying issued by the Copyright Licensing Agency,
Saffron House, 6-10 Kirby Street, London EC1N 8TS.
Any person who does any unauthorized act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.
The authors have asserted their rights to be identifi ed as the authors of this work
in accordance with the Copyright, Designs and Patents Act 1988.
First published 2015 by
PALGRAVE MACMILLAN
Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills, Basingstoke,
Hampshire RG21 6XS.
Palgrave Macmillan in the US is a division of St Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries
ISBN: 978–1–137–30494–0
This book is printed on paper suitable for recycling and made from fully
managed and sustained forest sources. Logging, pulping and manufacturing
processes are expected to conform to the environmental regulations of the
country of origin.
A catalogue record for this book is available from the British Library.
A catalog record for this book is available from the Library of Congress.
0011__99778811113377330044994400__PPrreelliimmss..iinndddd iivv 1122//33//22001144 33::4488::4477 PPMM
In the memory of my parents Aristotle and Georgia Christodoulakis, who
taught me about qualities versus quantities
0011__99778811113377330044994400__PPrreelliimmss..iinndddd vv 1122//33//22001144 33::4488::4477 PPMM

Contents
List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii
Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiii
Notes on Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xvii
Part I: Genesis of the Crisis, Use and Abuse of Economic Policies
1 Th e Genesis of the Eurozone Sovereign Debt Crisis . . . . . . . . . . . . . . . . . . . . . .3
Philippe d’Arvisenet
2 Th e Trade-Off between Fiscal and Competitiveness Adjustments . . . . . . . . .38
Daniel Gros with Cinzia Alcidi
3 Ireland and Greece: A Tale of Two Fiscal Adjustments. . . . . . . . . . . . . . . . . . .55
Jeff rey D. Anderson and Jessica Stallings
4 Rating Agencies vs. Sovereign Debt Markets: A Tale of Interacting Risk
Preferences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
George Christodoulakis
5 Th e 2012 Greek Debt Restructuring and its Aft ermath . . . . . . . . . . . . . . . . . .87
Miranda Xafa
6 Economic Th eories that Infl uenced the Judges of Karlsruhe. . . . . . . . . . . . .101
Paul De Grauwe
7 Privatization of State Assets in the Presence of Crisis. . . . . . . . . . . . . . . . . . .108
George Christodoulakis
Part II: Crisis Resolution, Prospect and Retrospect
8 How to Manage Public Debts in the Euro Area? . . . . . . . . . . . . . . . . . . . . . . .127
Catherine Mathieu and Henri Sterdyniak
9 Fiscal Risk Sharing and Stabilization in the EMU. . . . . . . . . . . . . . . . . . . . . .148
Kerstin Bernoth and Philipp Engler
10 Sovereign Debt and its Restructuring Framework in the Eurozone . . . . . . .163
Ashoka Mody
11 F unding Risks for Corporates in the Periphery: Disintermediation to
the Rescue for the Larger Ones, Challenges for the Others . . . . . . . . . . . . . .198
vii
0011__99778811113377330044994400__PPrreelliimmss..iinndddd vviiii 1122//33//22001144 33::4488::4477 PPMM
viii Contents
Blaise Ganguin
12 On Solving Europe’s Financial Issues to Promote Sustainable Growth. . . . .212
Adrian Blundell-Wignall and Caroline Roulet
13 E uropean Banking Union as a Response to the
Fragmentation of the Internal Market Resulting from the
Financial and Sovereign Debt Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .237
Dimitris Tsibanoulis with Gerry Kounadis
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .273
0011__99778811113377330044994400__PPrreelliimmss..iinndddd vviiiiii 1122//33//22001144 33::4488::4477 PPMM
List of Figures
1.1 Exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2 Exports of G & S, volume (index Q1/1991 = 100) . . . . . . . . . . . . . . . . . . . . . 4
1.3 Real three-month interbank rates, % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 Financial conditions in Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.5 Eurozone: credit to non fi nancial corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.6 Eurozone: credit to households . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.7 Debt of the private sector as % of GDP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.8 Domestic demand volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.9 Goods and services balance, % of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.10 Structural budget balance as % of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
1.11 Ten-year government bond yield, %. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
1.12 Real interest rate and external imbalances. . . . . . . . . . . . . . . . . . . . . . . . . . .11
1.13 Current account balance as % of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
1.14 Eurozone: fi ve-year CDS by sector (basis points) . . . . . . . . . . . . . . . . . . . . .15
1.15 Eurozone trade (as % of total trade) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
1.16 Eurozone: real growth dispersion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
1.17 Eurozone: core infl ation dispersion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
1.18 Eurozone: output gap correlation among eurozone countries
(eight-year rolling sample). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
1.19 Structural budget balance as % of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
1.20 Current account balance as % of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
1.21 Exports of goods and services in volume, index qi/2000=100 . . . . . . . . . .29
1.22 Nominal unit labour cost, country vs Germany (index 2005=100) . . . . . .29
2.1 Government debt as % of GDP: sovereign debt ratios not yet
under control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
2.2 ECB competitiveness indicator, unit labour cost, index, 1999Q1=100 . . .41
2.3 GDP defl ator, change between 1999 and 2012
(price index, 1999Q1=100). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
2.4 Italy: selected governance indicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
3.1 Read GDP level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
3.2 Ten-year government bond spreads vs. German bund. . . . . . . . . . . . . . . . .56
3.3 Unemployment rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
3.4 Inward FDI, 2000–11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
3.5 Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
3.6 Fixed capital formation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
3.7 Relative unit labour costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
3.8 Export volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
ix
0011__99778811113377330044994400__PPrreelliimmss..iinndddd iixx 1122//33//22001144 33::4488::4477 PPMM