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Article
Publication date: 21 August 2017

Asset liability management and the euro crisis: Sovereign credit risk as a challenge for the German life insurance industry

Miguel Rodriguez Gonzalez, Frederik Kunze, Christoph Schwarzbach and Christoph Dieng

This paper aims to investigate the long-term relationships of long-term European Monetary Union (EMU) government bond yields. From an asset managers’ or risk managers 

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Abstract

Purpose

This paper aims to investigate the long-term relationships of long-term European Monetary Union (EMU) government bond yields. From an asset managers’ or risk managers’ perspective during the euro crisis, the relevance of sovereign credit and redenomination risk became a major issue. Furthermore, it has to be differentiated between core and non-core EMU member countries.

Design/methodology/approach

Methods of applied time series analysis are used to investigate EMU government bond yields and EMU government bond yield spreads for Spain, Italy, The Netherlands, Austria and Germany. Both standard unit root testing procedures and breakpoint unit root tests are used to examine cointegrating relationships and structural changes in these relationships.

Findings

The empirical results deliver clear evidence for structural shifts in the long-term relationship between German and the two non-core EMU countries (Italy and Spain). The timing of the breaks coincides with the timing of the euro crisis. On the contrary, the results for Austria and The Netherlands are different from the findings for the two non-core countries.

Research limitations/implications

One major limitation of the study is the limited availability of data regarding to the reaction of asset managers or risk managers to the euro crisis. Especially in the context of the discussion with regard to the relevant risk-free rate for investors, this strand of research is relatively new.

Practical implications

A deeper understanding of changes in the long-term relationship between government bond yields and the re-emergence of redenomination risk is important for asset managers and risk managers in the financial services industry. This is especially true for German life insurers.

Originality/value

The study provides various empirical contributions to the literature on the euro crisis and sovereign credit risk. First, previous results with regard to the structural changes in the long-term relationship between German and Spanish, German and Italian, German and Austrian as well as Germany and Dutch government bond yields are confirmed using unit root breakpoint tests. Second, investigating the autoregressive coefficient and the timing of the breaks delivers evidence that non-core countries have been more exposed to the fear of redenomination risk. Third, we raise the question which risk free interest rate is relevant for the affected countries.

Details

The Journal of Risk Finance, vol. 18 no. 4
Type: Research Article
DOI: https://doi.org/10.1108/JRF-01-2017-0016
ISSN: 1526-5943

Keywords

  • Sovereign credit risk
  • Asset liabilty management
  • European monetary union
  • Life insurance sector
  • Redenomination risk

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Article
Publication date: 21 August 2017

Interest rate convergence, sovereign credit risk and the European debt crisis: a survey

Mario Gruppe, Tobias Basse, Meik Friedrich and Carsten Lange

This paper aims to briefly review the literature on interest rate convergence and the European debt crisis with a special focus on the current fiscal problems of some…

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Abstract

Purpose

This paper aims to briefly review the literature on interest rate convergence and the European debt crisis with a special focus on the current fiscal problems of some governments in Europe.

Design/methodology/approach

Relevant empirical papers are identified and reviewed focusing on time series analysis techniques.

Findings

The introduction of the euro has caused interest rate convergence among European Monetary Union (EMU) government bond yields. However, now sovereign credit risk and possibly even redenomination risk have caused divergences in European bond markets.

Research limitations/implications

A major limitation is that a relatively new field of the literature is surveyed. However, there are enough papers of relevance. This review paper could therefore be helpful in finding new approaches for additional empirical research examining the EMU bond market.

Originality/value

The results of empirical studies in a relatively new field of the literature are summarized. There meanwhile are some relevant papers. A brief survey of the results of these papers is provided. Important empirical findings with regard to interest rate convergence, sovereign credit risk and redenomination risk in the EMU are discussed and evaluated. The review is especially helpful for researchers and practitioners in the field of managerial finance and risk managers in the financial services industry.

Details

The Journal of Risk Finance, vol. 18 no. 4
Type: Research Article
DOI: https://doi.org/10.1108/JRF-01-2017-0013
ISSN: 1526-5943

Keywords

  • European debt crisis
  • Interest rate convergence
  • Sovereign credit risk

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Article
Publication date: 14 May 2018

Legal considerations to international contracts in the recent Greece financial crisis

Nashat Mahmoud Jaradt and Ijaz Ur Rehman

This research aims to focus on what has happened in light of the Greece legal crisis in terms of international contracts and what legal situations have arisen.

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Abstract

Purpose

This research aims to focus on what has happened in light of the Greece legal crisis in terms of international contracts and what legal situations have arisen.

Design/methodology/approach

This research focuses on what has happened in light of the Greek legal crisis in terms of international contracts and what legal situations have arisen. The overall situation in relation to international contracts and risk mitigation is discussed to analyze the efforts that have been made. The state of affairs in the country with regard to facilitating financial trade and enabling Greeks to send payments abroad or at the rate they need to is also explored.

Findings

The effects of financial crisis on international trade contracts as they relate to commercial businesses without taking into consideration the wider contractual obligations that Greece, as a country, have already defaulted on. The crux of the current crisis is the fact that Greece did not stick to the commitments it made to the European Union when it joined the eurozone and took on euro as their currency, replacing the drachma. It is important to understand that due to the scope of the economic crisis in the Greece, it is not simply the other contractual party’s creditworthiness and trustworthiness that are at issue, it is their ability to keep any promises in whatever climate arises in their country.

Research limitations/implications

The study is based on the financial crisis in Greek. Further research is needed to investigate the applicability of the findings in different contexts.

Originality/value

The study findings are believed to be valuable for international commercial contracts with regard to the Greek debt crisis in discussing the financial legal situation, facilitating trade and enabling Greeks to send payments abroad or at the rate they need. The study contributes to a better understanding of international commercial contract system.

Details

International Journal of Law and Management, vol. 60 no. 3
Type: Research Article
DOI: https://doi.org/10.1108/IJLMA-11-2016-0141
ISSN: 1754-243X

Keywords

  • Financial crisis
  • International contracts
  • Legal issues

Content available
Article
Publication date: 2 March 2012

Strategy in the news

Craig Henry

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Details

Strategy & Leadership, vol. 40 no. 2
Type: Research Article
DOI: https://doi.org/10.1108/sl.2012.26140baa.002
ISSN: 1087-8572

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Expert briefing
Publication date: 10 April 2015

Greece's TARGET2 balance could bring broader losses

Location:
EURO-AREA/GREECE

Exposure of euro-area countries to Greece through TARGET2.

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Details

DOI: 10.1108/OXAN-DB198868

ISSN: 2633-304X

Keywords

Geographic
Greece
EUR
EU
Germany
Spain
EURO-AREA/GREECE
Topical
economy
politics
balance of payments
banking
bonds
capital flows
debt
exchange rate
finance
election
government
monetary
policy
public sector
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Expert briefing
Publication date: 22 October 2018

Rome-Brussels confrontation to go beyond 2019 budget

Location:
ITALY/EU

That plan -- sent to the Commission on October 15 -- encompasses a significant fiscal easing. The Italian government must reply by October 22.

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Details

DOI: 10.1108/OXAN-DB239299

ISSN: 2633-304X

Keywords

Geographic
Italy
EU
EUR
ITALY/EU
Topical
economy
social
debt
fiscal
foreign investment
government
election
industry
politics
banking
bonds
growth
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Expert briefing
Publication date: 23 August 2018

Cosmetic changes will not save Venezuelan economy

Location:
VENEZUELA

Venezuela’s economic adjustment, announced on August 17 by President Nicolas Maduro, has met with international scepticism. There is little confidence that the…

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Details

DOI: 10.1108/OXAN-DB238014

ISSN: 2633-304X

Keywords

Geographic
Venezuela
LA/C
Ecuador
United States
Topical
economy
industry
international relations
politics
social
exchange rate
fiscal
government
investment
military
oil
opposition
policy
prices
privatisation
refugees
wages
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Article
Publication date: 1 October 1996

Commercial Banks' Role in Privatization: The Case of Poland

David A. Walker

Poland has made rapid economic advancement since introducing its shock therapy program January 1,1990. Inflation is now below 22 percent and real growth exceeds 5.1…

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Abstract

Poland has made rapid economic advancement since introducing its shock therapy program January 1,1990. Inflation is now below 22 percent and real growth exceeds 5.1 percent. Poland's future will be highly dependent on the development of its financial institutions. The commercial banks that had been branches of the National Bank of Poland and several other major banks are leading the privatization process. Five banks have been privatized and others will follow shortly. Cooperative — twinning — arrangements are being developed to provide international banking expertise and financial support for Poland's commercial banks. The profit maximizing financial institutions will be the primary vehicles to fund the development of Poland's market‐based economy. The privatized institutions will support the planned initial public offerings and joint business arrangements that are developing with western companies.

Details

Managerial Finance, vol. 22 no. 10
Type: Research Article
DOI: https://doi.org/10.1108/eb018583
ISSN: 0307-4358

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Book part
Publication date: 30 December 2004

ACCOUNTING FOR MONEY: THE FAIR VALUE OF CASH ASSETS AND DEPOSIT LIABILITIES

Bill Bergman

Fair value issues remain central to the pace of convergence in international accounting standards. This article identifies a fundamental issue at the root of the fair…

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Abstract

Fair value issues remain central to the pace of convergence in international accounting standards. This article identifies a fundamental issue at the root of the fair value debate, places the issue in an international and historical context, and recommends that standard-setters work to rationalize principles of accounting for money.

Details

Re-Inventing Realities
Type: Book
DOI: https://doi.org/10.1016/S1041-7060(04)10003-5
ISBN: 978-1-84950-307-5

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Book part
Publication date: 8 July 2019

Professionals and Identity Crisis: A Flexibility Matter?

Davide de Gennaro

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Abstract

Details

Professional Identity Crisis
Type: Book
DOI: https://doi.org/10.1108/978-1-78769-805-520191006
ISBN: 978-1-78769-805-5

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