Euro Crisis Research Articles

Changing Skill Formation in Greece and Italy – Crisis-Induced Reforms in Light of Common Institutional Legacies

Context: After the Eurozone crisis unfolded a decade ago, comparative political economy has investigated reforms of public administration, labour market, welfare state and economic policy particularly in Southern European nations which were hit hardest by the crisis. However, analyses of skill formation reform, particularly vocational education and training (VET), have been scant, despite a common problem pressure for reforms emanating from stubbornly high rates of youth unemployment and similar legacies of statist VET. Approach: We investigate VET reforms brought underway in Greece and Italy during and in the aftermath of the crisis, asking how far apprenticeship-like forms of learning within their VET systems were strengthened. Empirically, we base our analysis on primary and secondary sources, having conducted semi-structured expert interviews in Greece and Italy in 2019. Results: We find that both countries attempted to strengthen the role of apprenticeship and work-based learning, but that politics differed across the two cases in the context of the Eurozone crisis. While in Italy, reforms were 'internalised' and shaped by domestic politics, Greek reforms were largely driven exogenously by the negotiations with the Troika. Conclusion: Although Italy and Greece have undertaken reforms to reduce the dominance of the state in VET provision by expanding apprenticeships and work-based learning, these do not amount to large scale changes to the dominant logic of school-based VET provision. In order to boost their potential in terms of practical learning both countries would need to continue on their reform pathways.

IMF expertise in the eurozone crisis: from stimulus talk to austerity policy

The eurozone crisis presented the opportunity to reform European economic policies. In spring 2010, a new technocratic knowledge regime developed in the form of the Troika that consisted of the European Commission, the European Central Bank and the International Monetary Fund (IMF). This article provides new, previously understudied, knowledge on the internal dynamics of the Troika. As the prevailing austerity paradigm had been questioned during the preceding years also within the IMF, this study analyses the role of IMF’s expertise during the negotiations that led to the first Greek loan package and created a path-dependent crisis management scheme. It traces how the IMF acted as a source of expertise and its role in the persistence of the austerity paradigm. The analysis is based on a unique set of interviews with decision-makers. The IMF’s role in the negotiations was very important, but unexpectedly the Commission ruled on most of the content. In contrast to some earlier research, this analysis argues that even if the IMF had become more open to new economic-policy ideas, it did not truly challenge the European austerity policy. Reasons for this include the perceived lack of fiscal space, constraints from the EU, pessimism towards Greek growth, and the gap between research and policy departments of the IMF. This partly explains why the crisis did not lead to a change in eurozone policies. The analysis contributes also to identifying intra-institutional autonomy and fragmentation as reasons for the stability of economic paradigms despite apparent challenges even within hegemonic institutions such as the IMF.

글로벌 금융위기와 유럽 금융위기 기간의 항공사 효율성 분석 연구

The global financial crisis and economic recession lead to a decline in airline returns and deterioration in the business environment. In this regard, we compared and analyzed the efficiency of airlines during the global financial crisis and the European financial crisis by using the two-stage Network Data Envelopment Analysis (DEA) model. Network DEA can complement the shortcomings of the traditional DEA model and explain the transformation process hidden in the intermediate process and compare the relationship between efficiency. For the analysis, 16 airlines in Europe and related countries were selected and the period from 2007 to 2016, when the financial crisis occurred, was used. As variables, ‘operating costs’ and the ‘number of employees’ were used as input, and

How to Rate the Financial Performance of Private Companies? A Tailored Integrated Rating Methodology Applied to North-Eastern Italian Districts

This paper contributes to solving the puzzle of assessing the financial performance of private/unlisted companies. The inner characteristics of these companies make the adoption of traditional best practices in estimating risk premia difficult or impossible. Moreover, the lack of market data and comparable information biases the perception of corporate performance and generates the misallocation of credit fundings (both quantities and pricing). Hence, in this paper, we develop an Integrated Rating Methodology (IRM) to estimate a more efficient corporate “return-to-risk” measure. Our IRM is rooted in the seminal “certainty equivalent” model as developed by Lintner in 1965, but we modify it using a shortfall approach, and then compute a “confident equivalent” that is compliant with Fischer Black’s zero-beta model as well as the Basel agreements. An empirical application of the approach is conducted with a sample of 13,583 non-financial SMEs in the north-east regions of Italy, where there is evidence of inefficient bank financing. We back-test our IRM by rating these companies using corporate financial data during the period 2007–2014, which encompasses both the Great Financial Crisis and the European sovereign debt crisis. Our empirical results depict a clear crowding-out effect of credit allocations when we compare our IRM scoring measure with the actual raising ability and the cost of capital relating to these firms. We find that 36% of companies are underfunded, even if they have a superior IRM score, while 27% of them are funded without merit. Interestingly, this last figure is in line with the average non-performing loan ratio provided by official Italian statistics from 2015 to 2020. Therefore, we conclude that our IRM methodology is promising and may be better at estimating risk financing in small private companies (including start-ups) than internal banking models. These initial results will drive our forthcoming research towards creating an IRM 2.0.

Impact of Market Information Efficiency on Corporate Listing and Financing: Evidence from China

In this paper, we examine the impact of China’s capital market information efficiency on enterprise listing and financing. The results reveal the following: (1) High-efficiency market information sharing leads reduced enterprise equity financing costs and waiting times for enterprise listing and to an increased willingness of investors to invest. These effects increase the proportion of domestic financing for Chinese companies and the proportion of domestic listings. (2) Compared with non-crisis periods, market information efficiency did not affect the listing and financing of Chinese enterprises during the US subprime mortgage crisis, and its promotion effect declined during the global financial crisis and European debt crisis. (3) The promotion effect of market information efficiency on enterprise listing and financing is strengthened by the cross listing of enterprise AB and AH shares. (4) The impact of market information efficiency is more significant for private enterprises than for state-owned enterprises.

ECOWAS Common Currency Postponed Again: Will the Currency Ever be Launched?

The plan to introduce a common currency in West Africa has been difficult to achieve. Since this plan was agreed upon by member countries, it has faced more than 5 postponements, and this has made scholars and experts question whether the common currency will ever be introduced in the sub-region. This question comes from the postponement of the launch of the common currency to 2027. Before this announcement, the common currency was confronted with various issues and challenges (convergence criteria, fear of loss of fiscal sovereignty, CFA franc zone, and France hegemonic pressure). ECOWAS blamed the COVID-19 pandemic for the recent postponement of the date to 2027. This paper therefore seeks to interrogate the implication of the COVID-19 pandemic on the common currency process coupled with the already existing challenges and issues that had over the years confronted the common currency. The study relied essentially on qualitative data predicated on secondary data. The study adopted the theory of Optimum Currency Area. The paper revealed that the inability of ECOWAS to overcome the issues facing the common currency caused the postponements. The study recommended, amongst other things, that the issues and challenges should be addressed by ECOWAS, the process of the common currency should not be rushed, and the eurozone crisis should serve as a lesson to ECOWAS.

The German media as amplifier of the political agenda: The economic policy framing of European conflicts in times of COVID-19.

Especially in times of (corona) crisis, the German press plays a crucial role in communicating Germany’s economic policy orientation, influencing how the crisis is communicated to the public. The issue of joint European debt has never been more visible than in these times, as has the threat of a new euro crisis—Italy in focus. This study explores the German media framing of coronavirus disease 2019 (COVID-19) using Italy as an example. Applying quantitative content analysis, the relative prevalence of frames rooted in competing economic policy paradigms (neoliberal/Keynesian) in press coverage from February to July 2020 is examined. The Keynesian paradigm dominates coverage. Using logit analysis, issue-specific neoliberal frames are identified as solution oriented, while Keynesian frames focus on evaluations. With Germany's policy shift regarding European joint debt and toward European greater fiscal integration, a paradigm shift is observable. Overall, findings demonstrate a relatively paradigmatic pluralistic reporting.

Extreme quantile connectedness and spillovers between oil and Vietnamese stock markets: a sectoral analysis

PurposeThis study examines the extreme quantile connectedness and spillovers between West Texas Intermediate (WTI) crude oil futures and ten Vietnamese stock market sectors. Knowledge of such links is important to both investors and policymakers in understanding the transmission of shocks across markets.Design/methodology/approachThe authors employ the extreme quantile connectedness methodology of Ando et al. (2022).FindingsInitial results show that the size of spillovers is higher during bearish markets than bullish markets and under major financial, political, energy and pandemic events. The oil market is a net receiver of spillovers during downward markets and net contributors during upward markets. The banking sector is a net contributor of spillovers, whereas consumer discretionary and consumer staples are net receivers for different quantiles. The role of the remaining sectors as net receivers/contributors is sensitive to the quantiles. Oil has a large spillover effect on the electricity sector for all quantiles. Comparing all crises, oil offers the best hedging effectiveness to the Vietnamese sector during the coronavirus disease 2019 (COVID-19) crisis. Moreover, oil was a cheap hedge asset during oil crises. Finally, oil provides the highest hedging effectiveness for healthcare during the global financial crisis (GFC) and consumer staples during the European debt crisis (EDC), oil crisis and COVID-19.Originality/valueAcknowledging the presence of heterogeneity in the relation between oil and economic sectors under different market conditions, this study is the first to examine the extreme quantile connectedness between oil and Vietnamese sectors.

Price Stability Properties and Volatility Analysis of Precious Metals: An ICSS Algorithm Approach

This paper investigates the price stability properties of precious metals during the 1997 Asian Financial Crisis, 2007–2008 Global Financial Crisis, and 2010 Eurozone Crisis. To analyse the interaction between precious metal prices and the US stock market stock performances, we use the ICSS algorithm along with the GARCH model to evaluate how the number of rapid changes in volatility of precious metals has been reduced. The results suggest gold is the most stable of the precious metals. However, silver, platinum, and palladium showed positive price correlation when the US Dow Jones market was unstable. These results imply that: (1) the correlation among stocks market returns has little to no significant impact on the price movement of precious metals, but the US Dow Jones has some influence on precious metal markets except gold, which means investors can reap this benefit from diversification; (2) investors can systematically increase their portfolio returns by going short with the gold investments with low price co-movement and long on silver, platinum, and palladium with high co-movement with stock prices.

The decoupling between public debt fundamentals and bond spreads after the European sovereign debt crisis

ABSTRACT We contribute to the literature that documents empirically that the relationship between public debt fundamentals and sovereign bond spreads in Spain, France, and Italy (versus Germany) weakened after the 2010–2012 episode of sovereign debt markets’ significant distress. To construct our measure of public debt fundamentals, we build on the literature that combines the Value at Risk approach with the estimation of the correlation pattern of public debt dynamics’ macroeconomic determinants via Vector Auto Regressions (VARs) to estimate the probability distribution of alternative debt trajectories. Since we incorporate in the VAR new information in a sequential manner, we are able to retrieve time-varying probabilities that characterize the expected behaviour of debt at a given point in time in the future. We then empirically confront such probabilistic indicators with market-derived sovereign bond spreads.

International Lending of Last Resort in Historical and Theoretical Perspectives: Introduction

Abstract This paper provides an introduction to the special issue on international lending of last resort. Starting from debates about rescue operations and unconventional policies of major central banks in the contexts of the Global Financial Crisis and the European Debt Crisis, it draws attention to recurring controversies about trade-offs between averting critical contagion in financial markets and avoiding moral hazard. The need for international lending of last resort in strongly interconnected financial systems is more than ever evident, but there is no clear consensus on how to manage it. The contributions to this special issue put relevant issues in historical and theoretical perspectives.

Public diplomacy in an age of perpetual crisis: assessing the EU's strategic narratives through six crises

PurposeThe purpose of this research is to identify the strengths and weaknesses of the EU's public diplomacy – towards both domestic and external audiences – during times of crisis. The EU's public diplomacy is examined across six major crises: the Eurozone crisis (2008), the Ukrainian crisis (2014), the migrant crisis (2015), the Brexit referendum (2016), the new transatlantic relationship (2017) and the COVID-19 pandemic (2019). The goal of examining these crises in conjunction is to derive policy-relevant insights.Design/methodology/approachThis article adopts a problem-driven approach – the problem being how successful is the EU at public diplomacy during times of crisis – that draws theoretical and empirical insights from Communication Studies, International Relations and EU studies via a “strategic narratives” framework. It situates the EU as a unique public diplomacy actor, one which is becoming more prominent due to the mediatisation of diplomacy, especially driven by the advent of cyberspace.FindingsThe article finds that the EU has been experiencing a cycle of crises that have affected the political, economic, symbolic and social foundations of the common project. The EU has had some notable success – such as restoring confidence at the height of the Eurozone crisis – and some notable challenges – such as effectively combatting disinformation. Regardless, the EU has the potential to better manage these and future crises by engaging in an effective public diplomacy strategy that tells a shared European story that informs and inspires people, both domestically and externally.Originality/valueThe article offers an original examination of the EU's public diplomacy response to six different crises. It looks at different types of crises and utilises concepts from different social science perspectives. It offers novel strategic and policy recommendations.

New Constitutionalism and the EU: Its Limits and Prospects beyond the COVID-19 Pandemic

A key question for today is how far the apparent loosening of austerity following the COVID-19 pandemic in the form of the July 2020 European Recovery Plan of 750 billion euros, constitutes a first step towards debt mutualization (sharing of debts to fund recovery among EU Member States) but also whether it signals a move away from the neoliberal legal and political limits associated with neoliberal new constitutionalism measures, epitomized in the EU by the Maastricht Treaty and the Stability and Growth Pact. We think this prospect is unlikely – in the absence of significant political pressures demanding and creating alternative futures and promoting radical change. In lieu of paradigmatic change, Next Generation EU resembles a pragmatic shift – with indeed some innovative traits – triggered by two main motives: responding to the urgent pandemic shock, but most importantly tackling the lasting effects of economic and political imbalances, in an attempt to tame some of the socio-political tensions and risks of disintegration resulting from the mismanaged Eurozone crisis.

Modern Monetary Theory, Fiscal Dominance and the European Central Bank

In this paper, Modern Monetary Theory (MMT) is confronted with the peculiarities of the institutional setting of the European Monetary Union (EMU) and the monetary policy of the European Central Bank (ECB). Since the financial and euro crises of 2008, monetary policy has changed drastically both in the eurozone and worldwide. With a Quantitative Easing (QE) policy, a new era of monetary policy began that made money available in almost boundless quantities and free of charge. This fits very well with ideas of MMT as it proposes a unification of fiscal and monetary policy in which the government finances its expenditures exclusively with newly created money. Taxes are only used for redistributing income and controlling inflation. Although MMT requires that the government has its own currency, it has been proposed as a policy concept for the EMU. The contribution of this paper to the literature is twofold. Firstly, it is demonstrated that the EMU’s institutional setting is not suitable for MMT as the member countries’ fiscal sovereignty contradicts the employment of taxation to control inflation. Secondly, MMT’s inappropriateness for dealing with banking fragility and financial stability in the EMU is shown. Finally, it is argued that the existence of fiscal dominance in monetary policy is not sufficient for MMT’s concept.

Central Bank Policy Impacts on the Distribution of State Prices for Future Interest Rates, 2003–2022

In this article, we extend the 1978 Breeden–Litzenberger method of extracting state prices from option prices, showing how portfolios of butterfly spreads can be combined with right and left tail spreads to nonparametrically extract discrete state prices from option prices. We derive how those state prices should be biased estimates of true, objective probabilities. For interest rate options, we show that the biases can vary predictably over time (sometimes too high, sometimes too low), as the correlation of interest rates with consumption and wealth has changed signs over time. Consumption betas and proper risk premiums on bonds and of their state prices are at times predictably positive and at times predictably negative. We apply our technique to provide a brief 20-year history of central bank intervention impacts in the US, UK, and Eurozone from 2003 to 2022. Movements in state prices are quite large in the Financial Panic of 2008–2009, as well as in the European Sovereign Debt Crisis of 2010–2013, with Brexit and the Trump elections in 2016, and with the coronavirus pandemic in 2020–2021. Tapering in 2013 and 2022 and liftoffs in rates in 2015 and 2022 were shown to strongly shift state price distributions back toward the symmetry of 2003–2007. We show that central banks dramatically impacted entire state price distributions, not just levels of rates.

Systemic risk in the Scandinavian banking sector

AbstractThe banking sectors in the Scandinavian countries are highly concentrated, typically undercapitalised and they have suffered through several crises since the 1990s. This article analyses the systemic risk in Denmark, Norway and Sweden focusing on the co‐dependence in the tails of equity returns of an individual bank and the overall banking system. We use, partly in a new way, conditional cross‐quantilograms (CQs) for this purpose. We find that the CQs are positive and statistically significant in the low and high quantiles indicating that the Scandinavian banks are systemically linked. The low‐quantile dependence is relatively stronger compared with the magnitude of dependence in the other quantiles. These results hold even after controlling for equity market volatility and economic policy uncertainty. We further observe that the systemic risk was insignificant from the early—2000 to the outbreak of the global financial crisis (GFC). However, after the GFC and the euro zone crisis, the systemic risk has increased substantially. Finally, we find that bank size has a positive relationship with systemic risk (low‐quantile dependence) while return on asset and loan to deposit ratio exhibit a negative influence. Furthermore, these relationships are asymmetric across quantiles.

Multi-level blame attribution and public support for EU welfare policies

Since the Eurozone crisis, intense political debate has resurfaced about deservingness judgements in European solidarity. To contribute to this debate, this article proposes a refined concept of ‘multi-level blame attribution’. It postulates that public support for EU-level welfare policies crucially depends on how citizens attribute responsibility for economic outcomes across different levels of agency. Results from an original public opinion survey conducted in 10 European Union member states demonstrate that attributing blame to individuals decreases citizens’ willingness to show solidarity with needy Europeans, whereas attributing blame to the EU increases support. The role of attributing blame to national governments is dependent on the country context; beliefs that worse economic outcomes are caused by national governments’ policy decisions tend to dampen support for EU targeted welfare policies only in the Nordic welfare states. The article concludes by discussing the implications of multi-level blame attribution for the formation of public attitudes towards European solidarity.

More power, less influence: European union actors in media debates on fiscal policy after the eurocrisis

ABSTRACT Stronger European Union (EU) competencies come with greater media presence, according to existing cross-sectional comparisons. While presence comes with the power to influence public discourse, we know little about how it affects the overall tone of public discourse. This article investigates the effect of the empowerment of EU institutions on media presence and the tone of debate in the EU. It does this through an original claims analysis of newspaper articles in Germany, France, Italy, Spain, Denmark, and Poland during the height of the Euro crisis (2011–2012), the Greek bailout crisis (2015), and the Italian budget crisis (2018). EU media presence indeed increases following empowerment. However, this does not result in a more pro-European debate, because pro-European national voices are crowded out. While this does not affect the desirability of austerity, it does harden Eurosceptic public discourse.

Volatility Spillovers between Stock Market and Hedge Funds: Evidence from Asia Pacific Region

This paper investigates the nature of volatility spillovers between stock returns and hedge funds returns in twelve Asia Pacific countries in the 1997–2018 period. The sample period encompasses sub periods, 1997 Asia financial crisis, 2008 Global financial crisis and 2010 Eurozone crisis; these sub periods were characterised by financial upheavals. We apply the EGARCH methodology to model volatility and volatility spillovers in and between the markets. Our results show that the volatility of stock returns does not affect the volatility of hedge funds returns; however, there are inconsistent evidence of unidirectional volatility spillover from hedge funds to stock market returns.

TARGET balances in the euro area: the case of Germany

ABSTRACT Applying a BVAR model, the present paper first identifies the possible drivers of Germany’s TARGET claims. In this context, in terms of potential causes, a distinction is made between a rise in the global risk assessment, tensions within the euro area, and European monetary policy. It becomes evident that the TARGET flows between 2015 and 2017 can be ascribed in large part to monetary policy and to a minor extent to the risk assessment within the euro area. At the peak of the European debt crisis between 2010 and mid-2012, the TARGET flows were affected by uncertainty in the euro area as a dominant factor, although global factors also played a key role according to the model. The BVAR model we use opens up the possibility of studying the causes of current fluctuations in Germany’s TARGET claims.