Geschrieben von hkarner - 9. Juli 2013
Alexander Popov (ECB), Neeltje van Horen (Dutch Central Bank), 6 July 2013, voxeu
The European sovereign-debt crisis has raised many questions regarding the link between sovereigns and banks. This column goes to the heart of one and shows that tensions in Eurozone government-bond markets were transmitted internationally through the bank lending channel. Lending by European banks with sizeable exposures to sovereign debt from the troubled Eurozone countries became impaired after the start of the crisis, resulting in a reallocation away from foreign (especially US) markets.
The sovereign-debt crisis which erupted in the Eurozone in 2010 has sent ripples through the global banking system and prompted interventions by governments and central banks on a scale comparable to the programs implemented during the financial crisis of 2008-09. Its impact has reached far beyond Europe’s borders, with the IMF calling it “the most immediate threat to global growth” (IMF 2012). The consequences of the crisis, however, are not yet well understood and many questions have been raised regarding the link between sovereigns and banks. One question high on the policy agenda is whether tensions in Eurozone government-bond markets are transmitted internationally through the bank lending channel. In a recent working paper (Popov and Van Horen, 2013) we go to the heart of this question and show that foreign sovereign stress can indeed have a sizeable impact on bank lending.
The link between sovereign-debt exposure and bank lending
European banks tend to hold a large amount of government debt securities on their balance sheet. One of the main reasons for this is that the Capital Requirements Directive, which translated the Basel Accords into European law, allows for a 0% risk weight to be assigned to government bonds issued in domestic currency. Moreover, the Directive exempts government debt issued in domestic currency from the 25% limit on large exposures that applies to all other asset holdings. Because the special treatment of sovereign debt applies to all debt issued in euros, European banks tend to hold sizeable amounts of debt issued by foreign (mostly Eurozone) sovereigns, including debt issued by the GIIPS countries, i.e. Greece, Italy, Ireland, Portugal and Spain.1 Den Rest des Beitrags lesen »
Veröffentlicht in Artikel | Getaggt mit: Banken, Debt, ECB, Euro, Finanzkrise, PIIGS, Sovereign, voxeu | Leave a Comment »
Geschrieben von hkarner - 14. Juni 2013
Source: The Wall Street Journal
The recent turbulence rattling global bond markets is unmasking an unpleasant notion in Europe: The euro zone’s problems aren’t solved.
A climb in Greek bond yields reflects renewed euro-zone caution.
Government bonds have recently taken a hit around the world, now that investors are preparing for the possible end of central banks’ boundless economic stimulus. And those bonds of the weakest euro-zone countries have shown some of the biggest drops.
That suggests that the bonds of Spain, Italy, Portugal and Greece might be susceptible to bigger swings in the future, as the flood of cash that has poured into financial markets recedes, leaving their economic warts more exposed, market participants say.
Thanks to the European Central Bank’s pledge to support markets—and to the ocean of cash from central banks—those bonds saw extraordinary rallies for the better part of a year. But in recent weeks, the course has shifted somewhat.
Yields on the 10-year Greek bond, which had strengthened remarkably since last summer, ended Thursday at 10.03%. That is two percentage points higher than where they stood on May 22, when the U.S. Federal Reserve signaled its giant bond-buying program might slow this year. At 6.47%, the Portuguese 10-year is more than one percentage point above its May low. Bond yields rise when their prices fall. Den Rest des Beitrags lesen »
Veröffentlicht in Artikel | Getaggt mit: bond yields, Euro, Finanzkrise, PIIGS, WSJ | Leave a Comment »
Geschrieben von hkarner - 13. Februar 2013
Source: The New York Times
LONDON — BM Catalysts, a British producer of catalytic converters and other car exhaust parts, is an example of the kind of successful exporter that might seem to validate the historic gamble that Prime Minister David Cameron has taken by raising the prospect of Britain’s departure from the European Union.
Buoyed by the falling value of the pound and a work force with fewer of the labor restrictions found in many parts of Europe, Britain’s industrial exports, led by companies like BM and better-known names like Land Rover and Mini, could find growth markets in the dynamic economies of Asia and Latin America rather than continuing to rely on the rules-bound common market of Europe.
And yet the idea that Britain might be better off outside the 27-member European Union, a notion embraced with a near religious fervor by a small but influential faction of Mr. Cameron’s Conservative Party, is by no means widely accepted by the majority of voters here, according to opinion polls.
Nor is it the belief of top executives at BM Catalysts. They worry that Britain’s withdrawal from the bloc would make it harder to do business in Europe. Den Rest des Beitrags lesen »
Veröffentlicht in Artikel | Getaggt mit: Britain, Europe, Finanzkrise, NYT, PIIGS | Leave a Comment »
Geschrieben von hkarner - 28. Dezember 2012
Source: DER SPIEGEL
International Monetary Fund head Christine Lagarde has said that Germany should be the motor of growth in the EU.
Germany should move slower on fiscal consolidation and savings to counteract the economic effects of austerity programs currently throttling growth in Southern Europe, argues Christine Lagarde. Still, the IMF chief remains cautiously optimistic about the euro-zone’s economic prospects for the next year.
International Monetary Fund head Christine Lagarde has said that Germany should not be looking at measures aimed at consolidating its finances, apparently in concern over a SPIEGEL report indicating that the German Finance Ministry is working on a far-reaching package of spending cuts and tax hikes for introduction following general elections next autumn. In an interview with the Thursday edition of the influential weekly Die Zeit, she said that Germany needs to continue to work as a counterbalance to the biting austerity programs passed in crisis-stricken countries in Southern Europe. Den Rest des Beitrags lesen »
Veröffentlicht in Artikel | Getaggt mit: austerity, Euro, Europe, Finanzkrise, Germany, IMF, Lagarde, PIIGS, Spiegel | Leave a Comment »
Geschrieben von hkarner - 12. Oktober 2012
Source: The Wall Street Journal
In a perverse side effect of austerity, inflation rates are rising in contracting southern European economies as they decline in stronger, northern European economies, a divergence that could make it more difficult for southern Europe to return to growth.
Official figures Thursday showing high inflation in Spain and Portugal, two struggling economies at the center of the euro-zone debt crisis, offered a contrast with more subdued rates in “core” northern countries such as Germany and France.
The drivers of that divergence are the hikes in sales taxes—known to economists as indirect taxes—that governments in southern Europe have imposed in an effort to cut their budget deficits.
“Today’s German and French data show how indirect taxes are leading to a massive divergence between core and periphery countries’ inflation,” said Annalisa Piazza, economist at brokerage Newedge. Den Rest des Beitrags lesen »
Veröffentlicht in Artikel | Getaggt mit: Euro, Europe, Finanzkrise, Growth, Inflation, PIIGS, Recovery, WSJ | Leave a Comment »
Geschrieben von hkarner - 20. September 2012
Source: The Economist
Subject: The debtors’ merry-go-round
Our interactive overview of debt in the world’s biggest economies
IN THE years before the financial crisis, the rich world was surfing on a wave of private debt. Our interactive guide (updated on September 19th 2012) shows levels of debt as a percentage of GDP for a selection of rich countries and emerging markets. Between the first quarter of 2004 and the first quarter of 2009, private-sector non-financial debt rose by an average of 43% of GDP in the Western countries shown (excluding Germany). Since the crisis the debt burden has spread to the public balance-sheet. The costs of bail-outs and fiscal stimulus, and the effects of slow economic growth on tax revenues, have sent the ratio of government debt to GDP spiralling. The private sector has at least begun to deleverage: private-sector non-financial debt has decreased by eight percentage points on average in the past three years for those same six countries. But there is an awfully long way to go to turn back the clock. Den Rest des Beitrags lesen »
Veröffentlicht in Artikel | Getaggt mit: Britain, Debt, Economist, Euro, Europe, Finanzkrise, PIIGS | Leave a Comment »
Geschrieben von hkarner - 30. August 2012
The euro zone’s crisis-hit countries are becoming more competitive, according to a new German study. Wage costs are down, and the countries are reducing their trade imbalances. Painful reforms appear to be slowly bearing fruit, and the euro zone might even return to growth next year.
For the past three years, there has been little in the way of good news coming out of Southern Europe. But, on Wednesday, a new German study provided a rare glimpse of hope, suggesting that the crisis-struck countries may finally be turning the corner.
The study by the Association of German Chambers of Industry and Commerce (DIHK), commissioned by the Financial Times Deutschland newspaper, showed that the countries in crisis are becoming more competitive, based on two key indicators. Den Rest des Beitrags lesen »
Veröffentlicht in Artikel | Getaggt mit: Europe, Finanzkrise, FT, Germany, PIIGS, Recovery, Spiegel | Leave a Comment »
Geschrieben von hkarner - 22. August 2012
Greece may soon face bankruptcy, but what would happen after that? If governments and central banks want to preserve the euro, they might have to take some very risky steps — each with its own potential dangers. Europe has begun searching for the lesser of several evils.
Will Greece obtain fresh aid or slide into bankruptcy? Those will be the fundamental issues at stake when Greek Prime Minister Antonis Samaras travels to France and Germany this week for meetings with French President François Hollande and German Chancellor Angela Merkel. Even though the talks won’t result in official decisions, the two most important politicians in the euro zone will know after these meetings just what they can still expect from Greece — and they will draw the necessary conclusions.
For the currency union as a whole, however, the Greek tragedy itself is merely a prelude to the real battle to save the euro. If Greece actually did go bankrupt or left the currency union, the main priority for the rest of the bloc would be to use every means possible to prevent a further dissolution of the euro zone — even if these means have some quite problematic aspects. Den Rest des Beitrags lesen »
Veröffentlicht in Artikel | Getaggt mit: ECB, ESM, Euro, Eurobonds, Europe, Finanzkrise, Greece, Grexit, PIIGS, Spiegel | Leave a Comment »
Geschrieben von hkarner - 16. August 2012
Jaime Luque, Abderrahim Taamouti, 16 August 2012, voxeu
When economies are on the down, uncertainty is on the up – particularly during a crisis. But this column argues that the euro itself may have been a cause of uncertainty in the first place, long before the crisis.
The recent European debt crisis has hit several peripheral Eurozone countries. Problematic countries, such as Greece, Ireland, Portugal, Spain, and Italy, present high government debt levels and structural economic problems (see for instance Eichengreen 2010 on this site). Financing has become a difficult, sometimes impossible, task for them. Lenders are demanding high interest rates that are unsustainable in the long run. The public in general, and policymakers and economists in particular, have speculated on the reasons why uncertainty remained unsustainably high for these countries until they were forced to ask for a financial rescue
, like in the case of Greece, Ireland, and Portugal. In this column we bring a new perspective for these episodes based on very recent empirical results from our research (Luque and Taamouti 2012). Den Rest des Beitrags lesen »
Veröffentlicht in Artikel | Getaggt mit: Euro, Europe, Finanzkrise, PIIGS | Leave a Comment »