Search results

1 – 10 of 685
To view the access options for this content please click here
Book part
Publication date: 24 October 2013

Vighneswara Swamy

The Eurozone debt crisis has indeed jeopardized the recovery plans put in place post global crisis by regulators, policymakers, and the sovereigns. Though the crisis is…

Abstract

The Eurozone debt crisis has indeed jeopardized the recovery plans put in place post global crisis by regulators, policymakers, and the sovereigns. Though the crisis is epicentered in the Eurozone, the knock-on effects of the crisis are felt all across the globe. The emerging and developing economies (EDEs) are also expected to post lower growth on account of worsening external environment and a weakening internal demand. This chapter analyzes the causes for sovereign debt crisis, presents the implications of sovereign debt crises, and draws lessons for banking sectors more particularly in the context of emerging markets like that of India.

Details

Global Banking, Financial Markets and Crises
Type: Book
ISBN: 978-1-78350-170-0

Keywords

To view the access options for this content please click here
Article
Publication date: 2 January 2020

Vighneswara Swamy

The significant economic weight of the Eurozone in the globe caused the contagion of the Eurozone debt crisis on the emerging markets. The Eurozone debt crisis caused the…

Abstract

Purpose

The significant economic weight of the Eurozone in the globe caused the contagion of the Eurozone debt crisis on the emerging markets. The Eurozone debt crisis caused the sudden plummeting of the cross-border bank credit (BC) to India causing a significant impact on bank lending in India. Essentially, the purpose of this study is to find an answer to the question: Did the decline in cross-border cross-credit from Eurozone had an impact on domestic BC in India?

Design/methodology/approach

Using the data for the period from 2000 to 2013 sourced from Bank for International Settlements international banking statistics consolidated data sets, the novel specification of the study captures the impact of Eurozone cross-border credit on India by developing two regression frameworks that capture the pre-Euro debt crisis period scenario and post-Euro debt crisis period scenario.

Findings

The results offer a very interesting analogy of the behavior of BC and cross-border credit during the pre and post-Eurozone crisis scenarios of analysis. During the pre-Eurozone crisis period, cross-border credit displayed a significant negative relationship with BC indicating that cross-border credit to the Indian firms indirectly benefitted the banks by creating increased demand for domestic BC. The post-Eurozone crisis period witnessed a nexus between cross-border credit and BC during the pre-Eurozone crisis period, which gradually disappeared largely because of the onset of the Eurozone crisis.

Originality/value

This study is a first of its kind in investigating the impact of the Eurozone crisis on an emerging economy like India. This study supports the hypothesis of the existence of the transmission of financial shocks through the balance sheets of international banks. The findings conform to the policy concerns of most of the emerging economies that international banks transmit financial shocks from their home countries. The implication for India and other emerging economies is that international credit growth deserves careful monitoring.

Details

Journal of Financial Economic Policy, vol. 12 no. 4
Type: Research Article
ISSN: 1757-6385

Keywords

To view the access options for this content please click here
Article
Publication date: 17 August 2015

Sandra Cohen, María-Dolores Guillamón, Irvine Lapsley and Geraldine Robbins

The purpose of this paper is to examine the impact of the Eurozone financial crisis by discussing the experiences of Greece, Ireland and Spain. It particularly examines…

Abstract

Purpose

The purpose of this paper is to examine the impact of the Eurozone financial crisis by discussing the experiences of Greece, Ireland and Spain. It particularly examines the influence and actions of the Troika in the management of the sovereign debt crisis in the Eurozone.

Design/methodology/approach

The primary source of information for this study has been the documents of the Greek, Irish and Spanish Governments (often only available in their native language) and the reports of EU bodies and the IMF, supplemented by media coverage, as deemed appropriate. This has been analysed on a comparative basis to contrast the experiences of these three countries.

Findings

This study reveals how the Eurozone crisis has impacted on financially weak countries in this currency union. The fiscal conservatism of the Troika (the IMF, the EU and the European Central Bank) has had profound consequences for these economies, which have experienced dramatic cuts in public services.

Research limitations/implications

This study has focused on the experiences of three countries in the Eurozone. There is a case for extending this analysis to other Eurozone countries.

Practical implications

There are two approaches to recession – governments can stimulate demand by infrastructure spending or take the financial conservatism route of reducing public expenditure and public sector borrowing. However, the severity of the crisis undermines the first approach and there are uncertain outcomes with the second approach. This paper shows the effects of adopting financial conservatism as a strategy in this crisis.

Social implications

The austerity programmes pursued by the governments in this study have led to unemployment, migration of skilled workers, collapse in property markets, failing banks and social unrest.

Originality/value

This study takes an accounting perspective on the Eurozone crisis. This offers a distinctive interpretation of events. This study examines the merits of widely used theories in studies of public sector change namely legitimation and resource dependency theory intertwined with power and offers insights into how meaningful they are in explaining the dramatic influence of austerity programmes in the Eurozone.

Details

Accounting, Auditing & Accountability Journal, vol. 28 no. 6
Type: Research Article
ISSN: 0951-3574

Keywords

To view the access options for this content please click here
Book part
Publication date: 28 December 2013

Dania Thomas

The social protests on the streets of indebted sovereigns in crises across the Eurozone have made debt restructuring an imperative. Further delay in achieving this…

Abstract

The social protests on the streets of indebted sovereigns in crises across the Eurozone have made debt restructuring an imperative. Further delay in achieving this expeditiously and equitably significantly exacerbates the social costs of crises from which current and future generations will struggle to recover. This article examines the feasibility of the drastic and widespread debt restructuring needed to resolve the problem in the face of existing private law sanctions that protect individual creditor rights. It relies on an analysis of US policy in the transition to a securitized market and of key sovereign debt cases to reveal the historical contingency of private law protections. It concludes by showing that the effectiveness of private law protections have always been constrained by the overriding imperative to achieve debt sustainability with negotiated and consensual workouts. This can be achieved in the Eurozone with statutory constraints on enforcement action pending the settlement of debt workouts as suggested in a recent proposal.

Details

From Economy to Society? Perspectives on Transnational Risk Regulation
Type: Book
ISBN: 978-1-78190-739-9

Keywords

To view the access options for this content please click here
Article
Publication date: 18 May 2015

Finn Marten Körner and Hans-Michael Trautwein

The purpose of this paper is to test the hypothesis that major credit rating agencies (CRAs) have been inconsistent in assessing the implications of monetary union…

Abstract

Purpose

The purpose of this paper is to test the hypothesis that major credit rating agencies (CRAs) have been inconsistent in assessing the implications of monetary union membership for sovereign risks. It is frequently argued that CRAs have acted procyclically in their rating of sovereign debt in the European Monetary Union (EMU), underestimating sovereign risk in the early years and over-rating the lack of national monetary sovereignty since the onset of the Eurozone debt crisis. Yet, there is little direct evidence for this so far. While CRAs are quite explicit about their risk assessments concerning public debt that is denominated in foreign currency, the same cannot be said about their treatment of sovereign debt issued in the currency of a monetary union.

Design/methodology/approach

While CRAs are quite explicit about their risk assessments concerning public debt that is denominated in foreign currency, the same cannot be said about their treatment of sovereign debt issued in the currency of a monetary union. This paper examines the major CRAs’ methodologies for rating sovereign debt and test their sovereign credit ratings for a monetary union bonus in good times and a malus, akin to the “original sin” problem of emerging market countries, in bad times.

Findings

Using a newly compiled dataset of quarterly sovereign bond ratings from 1990 until 2012, the panel regression estimation results find strong evidence that EMU countries received a rating bonus on euro-denominated debt before the European debt crisis and a large penalty after 2010.

Practical implications

The crisis has brought to light that EMU countries’ euro-denominated debt may not be considered as local currency debt from a rating perspective after all.

Originality/value

In addition to quantifying the local currency bonus and malus, this paper shows the fundamental problem of rating sovereign debt of monetary union members and provide approaches to estimating it over time.

Details

The Journal of Risk Finance, vol. 16 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

To view the access options for this content please click here
Article
Publication date: 19 January 2015

Andrea Consiglio and Stavros Zenios

This paper aims to use a risk management approach for re-profiling of sovereign debt. It develops profiles that trade off expected cost of financing alternative debt

Abstract

Purpose

This paper aims to use a risk management approach for re-profiling of sovereign debt. It develops profiles that trade off expected cost of financing alternative debt structures against their risk. The risk profiles are particularly informative for countries facing sovereign debt crisis, as they allow us to identify, with high probability, debt unsustainability. Risk profiles for two eurozone countries with excessive debt, Cyprus and Italy, were developed. In addition, risk profiles were developed for a proposal to impose debt sanctions in the Ukrainian crisis and it was shown that the financial impact could be substantial.

Design/methodology/approach

Using scenario analysis, a risk measure of the sovereign’s debt – Conditional Debt-at-Risk – was developed, and an optimization model was then used to trade off expected cost of debt financing against the Conditional Debt-at-Risk. The model is applied to three diverse settings from current crises.

Findings

The methodology traces informative risk profiles to identify sustainable debt structures. Interesting, although tentative, conclusions are drawn for the countries where the methodology was applied. Cyprus’s debt sustainability hinges on current International Monetary Fund (IMF) projections about gross domestic product growth and small deviations can push debt into unsustainable territory. For Italy, our analysis provides evidence of debt unsustainability. Common assumption of debt by eurozone member states could restore sustainability for Italy. Finally, it is shown how a proposal to impose debt sanctions against Russia for the Ukrainian crisis could have significant financial impact for Ukraine.

Research limitations/implications

Additional work is needed to calibrate the simulation models for each country separately. Nevertheless, the direction of the results is such that more careful calibration will most likely not alter the conclusions but make them stronger instead.

Practical implications

The results provide significant insights for the management of sovereign debt for Cyprus and Italy. They also show the significant positive impact on Ukrainian public finances from debt sanctions. However, the most important practical implication is to show how the proposed methodology provided a decision support tool for restructuring and rescheduling sovereign debt for crisis countries.

Social implications

There is widespread acceptance that debt restructuring has been too little and too late in recent crises failing to re-establish market access in a durable way. How to develop risk profiles for alternative debt structures has been illustrated. Debt profiles that are unsustainable can be identified, with high probability, and alternative structures proposed that restore sustainability. The methodology proposed in this paper is providing a useful tool of analysis. The topic of debt relief is currently debated widely at policy circles by the IMF and the United Nations, and the analysis of this paper provides some insightful input to the debate.

Originality/value

The use of scenario analysis for sovereign debt modeling and the use of an optimization model developed by the authors in previous research provide empirical analysis for three current problems in sovereign debt management. Useful insights are obtained for three important real-world cases for Cyprus, Italy and Ukraine.

To view the access options for this content please click here
Book part
Publication date: 24 October 2013

Minsoo Lee, Donghyun Park, Arnelyn Abdon and Gemma Estrada

This chapter investigates the impact of the euro crisis on Asia’s short-term economic outlook. This chapter tries to answer this question by examining both the trade and…

Abstract

This chapter investigates the impact of the euro crisis on Asia’s short-term economic outlook. This chapter tries to answer this question by examining both the trade and financial channels of crisis transmission. More specifically, it looks at the effect of euro crisis on Asian exports and growth, contagion from EU financial markets to Asian financial markets, and influence of EU bank lending on credit growth in Asia. The chapter also touches upon Asia’s policy space to assess how well the region is positioned to weather another major external shock. This chapter finds that the impact of euro crisis on developing Asia points to a sizable but manageable short-term impact. Furthermore, our analysis points to a significant effect on the region’s financial systems, especially its banking sector. This chapter informs policymakers of the impact of the euro crisis and advice to continue to keep a close eye on eurozone developments and their ramifications for their economies.

Details

Global Banking, Financial Markets and Crises
Type: Book
ISBN: 978-1-78350-170-0

Keywords

To view the access options for this content please click here

Abstract

Details

The Current Global Recession
Type: Book
ISBN: 978-1-78635-157-9

To view the access options for this content please click here
Article
Publication date: 10 July 2020

Ergin Akalpler

This study aims to research the effects of unemployment wages current account and consumer price index (CPI) on the real gross domestic product (RGDP), which, in the…

Abstract

Purpose

This study aims to research the effects of unemployment wages current account and consumer price index (CPI) on the real gross domestic product (RGDP), which, in the optimum currency area (OCA) theory, supposes that countries with higher factor mobility can significantly profit from the currency area. However, in this study, it is shown that the considered optimum currency crisis (OCC) model is affected by mobility factors, as the defined theory has not been perfectly realised in the Eurozone.

Design/methodology/approach

In this study, Breusch–Pagan–Godfrey and Lagrange multiplier (LM) tests are used for supporting the survey for better estimation of the panel cointegration tests, where Pedroni's (1995, 1997) technique is used. The unit root tests are employed, of which the Phillip–Perron and augmented Dickey–Fuller tests (unit root test, Dickey, D. and W. Fuller, 1979) are considered.

Findings

It can be concluded that demand shocks will tend to be more asymmetric instead of being symmetric, even though they are in the customs union (CU). However, Polish workers in a given scenario may move to Germany, but because of the rigidity of the labour market and qualification differences between workers, the interregional integration of member countries is reduced, and this reduces the absorption of asymmetric shocks. In Germany, where strong employment protection and rigidity are observed in comparison to Poland, although there has been historical migration and economical collaboration, unfortunately, the integration of the two countries’ economies has not been realised.

Research limitations/implications

Quantitative research on fiscal union and the estimation of its effects is not possible because there is no practical experience of fiscal union throughout the European Union (EU). However, quantitative research is used for estimating the effects of OCA in the Eurozone. Quantitative investigation is particularly focused on the monetary union and single currency and its impact on growth rate. In this study, the ordinary least squares (OLS) method and panel cointegration test are employed for estimating the effects of the considered variables.

Practical implications

The Eurozone and the application of a single currency throughout the EU was a considerably difficult task. In addition, the adoption of a single currency was not easy for those member countries that fulfilled the “convergence criteria” (or “Maastricht criteria”) and who joined the Eurozone, because only adoption is not enough; maintenance of those criteria is also required. This study analysed the application of the Eurozone in the light of the OCA of Mundel's theory.

Social implications

The OCA is important for member countries’ economic relations. However, the application of a single currency is not easy and needs to be controlled and regulated to ensure best practises throughout the Eurozone. Monetary integration is not a simple process, and Eurozone countries’ financial difficulties affect each other’s markets’ indifferent aspects. Particularly in any market recession, demand shocks tend to have different effects. Furthermore, in comparison to the monetary union, the CU has a considerable impact on trade enlargement.

Originality/value

In this study, the effects of the independent variables “wages, unemployment, CPI and capital flow” on the dependent variable “RGDP” is considered, which, in the OCA theory, supposes that countries with higher factor mobility can significantly profit from the currency area. In application, it was turned into crisis because of inadequate monetary and fiscal application. In this paper OCA is questioned in the light of the Eurozone for bringing better understanding to these difficulties. The considered model and estimations are used for evaluating to create sustainable monetary integration for economic growth.

Details

Journal of Economic and Administrative Sciences, vol. 37 no. 1
Type: Research Article
ISSN: 1026-4116

Keywords

To view the access options for this content please click here
Book part
Publication date: 26 February 2016

Noel Cassar and Simon Grima

The recent development of the European debt sovereign crisis showed that sovereign debt is not “risk free.” The traditional index bond management used during the last two…

Abstract

Introduction

The recent development of the European debt sovereign crisis showed that sovereign debt is not “risk free.” The traditional index bond management used during the last two decades such as the market-capitalization weighting scheme has been severely called into question. In order to overcome these drawbacks, alternative weighting schemes have recently prompted attention, both from academic researchers and from market practitioners. One of the key developments was the introduction of passive funds using economic fundamental indicators.

Purpose

In this chapter, the authors introduced models with economic drivers with an aim of investigating whether the fundamental approaches outperformed the other models on risk-adjusted returns and on other terms.

Methodology

The authors did this by constructing five portfolios composed of the Eurozone sovereigns bonds. The models are the Market-Capitalization RP, GDP model RP, Ratings RP model, Fundamental-Ranking RP, and Fundamental-Weighted RP models. These models were created exclusively for this chapter. Both Fundamental models are using a range of 10 country fundamentals. A variation from other studies is that this dissertation applied the risk parity concept which is an allocation technique that aims to equalize risk across different assets. This concept has been applied by assuming the credit default swap as proxy for sovereign credit risk. The models were run using the Generalized Reduced Gradient (GRG) method as the optimization model, together with the Lagrange Multipliers as techniques and the Karush–Kuhn–Tucker conditions. This led to the comparison of all the models mentioned above in terms of performance, risk-adjusted returns, concentration, and weighted average ratings.

Findings

By analyzing the whole period between 2006 and 2014, it was found that both the fundamental models gave very appealing results in terms of risk-adjusted returns. The best results were returned by the Fundamental-Ranking RP model followed by the Fundamental-Weighting RP model. However, better results for the mixed performance and risk-adjusted returns were achieved on a yearly basis and when sub-dividing the whole period in three equal periods. Moreover, the authors concluded that over the long term, the fundamental bond indexing triumphed over the other approaches by offering superior return and risk characteristics. Thus, one can use the fundamental indexation as an alternative to other traditional models.

Details

Contemporary Issues in Bank Financial Management
Type: Book
ISBN: 978-1-78635-000-8

Keywords

1 – 10 of 685