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In the euro’s initial years, Greece, Ireland, Italy, Portugal and Spain observed capital flow bonanzas and credit-booms, two cycles known to precede banking crises. Domestic banks fuelled those cycles via funding obtained from foreign financial institutions. Yet, these countries’ banking and financial crises have unfolded in different modes. In Ireland and Spain, credit-booms propelled real-estate bubbles, which dragged banks into crises, with governments’ accounts later being affected when rescuing banks (Spanish regional banks, and all Irish major banks). In Greece and Italy, extra monetary means perpetuated government imbalances (e.g. debt levels above 100% of GDP, large yearly deficits). More severely in Greece, banks were brought into crises by sovereign crises. In Portugal, a mixture of private and public sector–led crises have occurred. Our comparative study finds that these crises: (1) are connected to shocks and imbalances caused by dangerous banking sector cycles during the monetary integration process; (2) were not mere expansions of the US subprime crisis; (3) were not only caused by country-specific features and institutions; and (4) followed distinct paths, therefore, a uniform model encompassing all post-euro crises cannot exist.

Although the trigger for the European economic and financial crisis was the subprime and subsequently banking crisis in the USA, the true roots of theEuropean malaise are to be found in the structural weaknesses of the European growth and Euro area development model based on debt financing of public and private expenditure and investment. These drivers were amplified by the lack of effective economic policy mechanisms from both the monetary and fiscal sides of macro-economic management. The global financial crisis of 2007–2009 did not cause the underlying imbalances that are currently acting to tear apart the Euro area monetary and fiscal systems. Instead, it crystallised markets and public attention on the underlying core cause of the overall Euro crisis – the insolvency of the public financing system of the European Union (EU) member states.

This chapter analyzes the exchange rate pass-through (ERPT) into different prices for 12 euro area (EA) countries. We provide new up-to-date estimates of ERPT by paying attention to either the time-series properties of data and variables endogeneity. Using VECM framework, we examine the pass-through at different stages along the distribution chain, that is, import prices, producer prices, and consumer prices. When carrying out impulse response functions analysis, we find a higher pass-through to import prices with a complete pass-through (after one year) detected for roughly half of EA countries. These estimates are relatively large compared to single-equation literature. We denote that the magnitude of the pass-through of exchange rate shocks declines along the distribution chain of pricing, with the modest effect recorded for consumer prices. When assessing for the determinant of cross-country differences in the ERPT, we find that inflation level, inflation volatility, and exchange rate persistence are the main macroeconomic factors influencing the pass-through almost along the pricing chain. Thereafter, we have tested for the decline of the response of consumer prices across EA countries. According to multivariate time-series Chow test, the stability of ERPT coefficients was rejected, and the impulse responses of consumer prices over 1990–2010 provide an evidence of general decline in rates of pass-through in most of the EA countries. Finally, using the historical decompositions, our results reveal that external factors, that is, exchange rate and import prices shocks, have had important inflationary impacts on inflation since 1999 compared to the pre-EMU period.

“It should also be noted that the objective of convergence and equal distribution, including across under-performing areas, can hinder efforts to generate growth. Contrariwise, the objective of competitiveness can exacerbate regional and social inequalities, by targeting efforts on zones of excellence where projects achieve greater returns (dynamic major cities, higher levels of general education, the most advanced projects, infrastructures with the heaviest traffic, and so on). If cohesion policy and the Lisbon Strategy come into conflict, it must be borne in mind that the former, for the moment, is founded on a rather more solid legal foundation than the latter” European Commission (2005, p. 9)Adaptation of Cohesion Policy to the Enlarged Europe and the Lisbon and Gothenburg Objectives.

This paper produces a comprehensive assessment of income redistribution to the working-age population, covering OECD countries over the last two decades. Redistribution is quantified as the relative reduction in market income inequality achieved by personal income taxes (PIT), employees’ social security contributions, and cash transfers, based on household-level micro-data. A detailed decomposition analysis uncovers the respective roles of size, tax progressivity, and transfer targeting for overall redistribution, the respective role of various categories of transfers for transfer redistribution; as well as redistribution for various income groups. The paper shows a widespread decline in redistribution across the OECD, both on average and in the majority of countries for which data going back to the mid-1990s are available. This was primarily associated with a decline in cash transfer redistribution while PIT played a less important and more heterogeneous role across countries. In turn, the decline in the redistributive effect of cash transfers reflected a decline in their size and in particular by less redistributive insurance transfers. In some countries, this was mitigated by more redistributive assistance transfers but the resulting increase in the targeting of total transfers was not sufficient to prevent transfer redistribution from declining.

Recent evidence on the impact of the crisis on developed countries shows that changes in income inequality and poverty have been relatively small in spite of the macroeconomic heterogeneity of the recession across different economies. However, when evaluating individual perceptions linked to the crisis any changes in the chances to scale up or lose ground in the income ladder are also crucial. Our aim in this paper is to analyze to what extent the recession has had an impact on individual equivalent incomes and, in particular, on the prevalence of downward mobility in two developed countries where job losses have been large. We find that income losses have increased, particularly in Spain, and while age and education are key determinants of the probability of experiencing an income loss in both countries, the presence of children only increases the probability of an income loss in Spain.

Social origins theory proposes that countries cluster around different models according to how public welfare spending affects nonprofit sector scale (Anheier & Salamon, 2006; Salamon & Anheier, 1998). This article confronts these assumptions about a liberal, corporatist, and social democratic model with results from a comparative analysis of highly industrialized countries with extensive welfare arrangements. We focus on nonprofit sector employment in relation to total employment in the welfare field, including education and research, health, and social services. Explanatory factors are public welfare spending, share of income from donations, and religious homogeneity. Qualitative Comparative Analysis (QCA) (Ragin, 2000) is applied to sort countries in types. The results show that the consequences of public sector welfare spending on nonprofit welfare employment vary depending on other social conditions. In liberal countries, low public sector welfare spending results in a small nonprofit share of employment. The preconditions are low religious homogeneity and large shares of nonprofit income from donations. In other Western European countries, the size of public sector welfare spending is inversely proportional with the size of the nonprofit share of employment, depending on religious homogeneity. The Nordic countries have the highest religious homogeneity, and largest public welfare costs, and accordingly, the smallest share of nonprofit welfare services. However, a similar “crowding out” pattern can be found in the presumably corporatist countries such as France, Austria, and also to some extent in Germany and Italy. In the other end of the line, we find the Netherlands, which is the clearest example of the presumed corporatist pattern in this sample. Religious homogeneity comes into play in both the liberal and the Western European causal constellation in accordance with Weisbrod's theory of government failure/market failure (Weisbrod, 1977), which indicates that this factor is more important for nonprofit welfare regimes than previously thought.

The events of the summer of 2011 have affected the international financial sector immeasurably, with concerns about defaults in Spain and Italy, and the United States. The United States was further rocked by a downgrading of its triple A status by the rating agency Standards and Poor. In the preceding weeks, news that a deal had been reached which would provide the second bailout for Greece was greeted with relief across the financial world. However, the fiscal crisis which had threatened the very future of the Eurozone was not addressed by this intervention. In Ireland, the news that interest rates for their bailout would be reduced with a longer time for payback was also seen as welcome, allowing for a domestic budget that would not be so austere as to prohibit growth. However, both Greece and Ireland remain peripheral nations in the ongoing fiscal crisis which has destabilised the global financial sector. A political solution to this fiscal crisis appears beyond the capabilities of elected officials who are caught between populist electoral concerns about austerity measures and a neo-liberal fixation with credit related growth, the basis of which underpins ‘the casino capitalism’ of the global investment markets.

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.

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.

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.

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.

We analyze the determinants of the cyclical position in some Baltics and South-Eastern European countries as well as peripheral European countries over the period 2000–2013. Specifically, we consider a sample of eight economies: Croatia, Estonia, Latvia, and Lithuania for the sub-sample of Baltics and South-Eastern European economies; and Greece, Ireland, Portugal, and Spain for the sub-sample covering EMU peripheral countries. To this end, we proceed in two steps. In the first, we simulate Taylor rules for each studied countries in order to see to what extent the effective monetary policy has suffered from an expansionary bias. Such analysis is conducted for both peripheral and Central, Eastern, and South-Eastern Europe (CESE) countries. In a second step, we compare the simulated Taylor rules for our selected CESE countries with the Eurozone Taylor rule. Our contribution is threefold. First we show that the ineffectiveness of monetary policy to face imbalances – and especially financial imbalances – suggest that the EU should adopt macroprudential measures. Second, the experience of CESE and Peripheral countries suggests that fiscal policy has tended to be pro-cyclical or at least neutral. Third, we underline the importance of using the Macroeconomic Imbalance Procedure as a tool to implement automatic adjustment mechanisms.