Portugal, Ireland, Italy, Greece And Spain Research Articles

ESG, macroeconomic fundamentals and stock returns: Corporate governance implications from EU markets

This paper examines how Environmental, Social, and Governance (ESG) factors influence stock returns and economic performance in the EU. It delves into advanced economies, GIIPS (Greece, Ireland, Italy, Portugal, and Spain), and CEE (Central and Eastern Europe) countries. By analyzing data, the study highlights areas for improvement in the EU’s ESG performance, such as resource use and social equity. Interestingly, the analysis finds that strong corporate governance, particularly in CEE, is linked to higher stock returns, suggesting the value of sound regulations. Conversely, environmental performance shows a negative correlation with returns in CEE, likely due to the region’s historical dependence on heavy industry. Overall, this study emphasizes how ESG can guide investors towards companies promoting sustainable economic growth.

Tail risk emanating from troubled European banking sectors

The spillover risk and systemic risk of the troubled banking sectors of Greece, Ireland, Italy, Portugal and Spain (GIIPS) for the rest of the European and the US banking sector are investigated using the conditional value-at-risk (CoVaR) framework. Our results show that the CoVaR estimates are sensitive to the choice of static and dynamic parametrization of volatility and pairwise-correlations. Nevertheless, even the conservative estimates for CoVaR and changes in it display that the magnitude of these risks, originating from GIIPS countries, is large. These risks affect banking of large European and the US banking sectors more than the rest.

Macro level analysis of factors contributing to value added: technological changes in European countries

In conditions of globalization and rapidly growing production fragmentation, generation of value added becomes an ultimate goal and a measure of economic performance. The study provides an analysis of factors contributing to value added at macro level in different European countries. The analysis includes a panel framework covering 27 European countries over the period 2006–2015. In order to investigate the differences across regions, three subsamples are considered, namely, developed economies, PIIGS (Portugal, Italy, Ireland, Greece and Spain) and Central-Eastern European Countries (CEEC). Pooled OLS, fixed effects and random effects models are used. The results indicate that increase of value added corresponds to budget discipline, quality of human capital improvement, strong currency and transparent institutions. It could be expected that currency depreciation improves performance of the value added of exported final goods. However, the results show the opposite evidence: currency depreciation causes the value added decrease in all groups. Thus, for transitional countries, it is im¬portant not only to join global production chains, but also to acquire a significant share in generation of value added in these chains based on technological changes.

THE TWIN DEFICITS HYPOTHESIS: NEW EVIDENCE FROM GIIPS ACCOUNTING FOR STRUCTURAL SHIFTS IN CAUSAL LINKAGES

This study re-examines the dynamic causal link between government budget and current account deficits for five highly indebted European countries: Greece, Ireland, Italy, Portugal and Spain (GIIPS) with newly developed econometric techniques. Utilizing first Toda –Yamamoto causality analysis and then its Fourier approximation to consider structural shifts, this study asks whether accounting structural shifts plays a role on these causal linkages. The results reveal that considering structural shifts is important for the relationship between fiscal and current account imbalances of the GIIPS. The findings of analysis that does not consider structural changes indicate that the twin deficit hypothesis is supported through Keynesian Hypothesis (for Spain) or Current Account Targeting Hypothesis (for Greece and Portugal) but also Barro-Ricardo Equivalence Theorem is acknowledged for Ireland and Italy. On the other hand, the causality analysis that account for structural changes show that current account targeting hypothesis is supported by all countries, except Ireland

Instabilidade financeira na Eurozona e a crise dos títulos públicos dos GIIPS

Resumo A instabilidade financeira na zona do Euro, deflagrada em setembro de 2008, e sua intensificação com a crise dos títulos soberanos dos GIIPS (Grécia, Irlanda, Itália, Portugal e Espanha) a partir de 2010 revelam a capacidade disruptiva da articulação entre finanças liberalizadas e desregulamentadas, de um lado, e a rígida institucionalidade do Euro, de outro. Embora essa institucionalidade tenha propiciado a expansão das economias mais fracas da Eurozona no contexto de bonança, as rigidezes impostas pela institucionalidade do Euro sobre as políticas econômicas nacionais se tornaram explícitas quando da reversão das expectativas. Neste sentido, o objetivo do artigo consiste em analisar a instabilidade financeira da Eurozona, com destaque à crise dos títulos soberanos dos GIIPS, a partir da abordagem Minskiana. O artigo discute as principais características do processo de fragilização da estrutura financeira dos GIIPS, assim como o comportamento do sistema financeiro da zona do Euro e o papel do Eurossistema na acomodação da crise. Sustenta-se que a crise financeira dos GIIPS pode ser compreendida a partir da abordagem Minskiana e que as deficiências da institucionalidade do Euro, particularmente no que diz respeito à perda de soberania monetária das economias nacionais, dificultaram a viabilização da estabilidade financeira nas economias da região mais afetadas pela crise.

The information transmissions between the European sovereign CDS and the sovereign debt markets of emerging countries

Using a generalized vector autoregressive framework in which forecast error variance decompositions are invariant to the variable ordering, this paper documents the information transmission between the sovereign CDS markets of Greece, Ireland, Italy, Portugal and Spain (GIIPS) and the sovereign debt markets of twenty-six emerging countries. This paper finds that although the European sovereign crisis was triggered by the deterioration of these countries' fiscal conditions, the sovereign debts markets of emerging countries moved ahead of the CDS markets of EU peripheral countries in terms of information transmission in the short run. The first principal component of the changes in GIIPS CDS spreads has a large variance contribution share to the forecast error variances of the sovereign debt spreads of emerging countries. Greek CDS spread contains no superior information, if not less, related to sovereign debts of emerging countries relative to the others. Finally, cross-sectional analysis indicates that an emerging country with less open to international trades and a larger market value of sovereign debts, the sovereign debts of that country is more vulnerable to the EU sovereign risk.

Banking solvency determinants in the EU: a model based on stress tests

ABSTRACTUsing a multilevel regression model, this article aims to find determinants of banking solvency in the European Union. The endogenous variable is defined as the capital ratio determined by stress tests. Both internal (financial ratios and sovereign debt exposures) and external (macroeconomic indicators) variables are proposed as covariates. The results reveal that capitalization, earnings, assets structure and exposure to PIIGS (Portugal, Italy, Ireland, Greece and Spain) sovereign debt are significant among the former, and economic growth, interest and exchange rates, and real estate prices among the latter.

UNEMPLOYMENT HYSTERESIS IN PIIGS COUNTRIES: A NEW TEST WITH BOTH SHARP AND SMOOTH BREAKS

In this empirical study, we apply the Panel stationary test with both sharp and smooth breaks to re-examine the hysteresis hypothesis of unemployment for five high-debt countries, Portugal, Ireland, Italy, Greece and Spain (PIIGS) from 1960 to 2011. We find that our proposed model has greater power than a linear method if the true data-generating process of unemployment is a stationary, non-linear process of unknown form with structural changes. Hysteresis in unemployment is confirmed for all PIIGS countries when traditional unit root tests are employed; however, hysteresis in unemployment is confirmed only for Greece when our proposed Panel stationary test with both sharp and smooth breaks is utilized.

Transmission of liquidity shocks: Evidence on cross-border bank ownership linkages

This study examines whether a liquidity shock to a banking system could be transmitted to other economies through a network of bank ownership. Firstly we construct cross-border ownership networks for banks located in European countries. We then exploit the 2010 European debt crisis as a natural experiment. The analysis shows that subsidiary banks located outside of Greece, Ireland, Italy, Portugal and Spain (GIIPS) but with ownership linkages to these countries have a lower loan growth rate during the crisis period. This suggests that the liquidity shock experienced by GIIPS countries was indeed transmitted to those banks through ownership linkages. Larger subsidiary banks and those subsidiaries that were more profitable are found to be more resilient to the shock. We also find that the parent bank’s characteristics affect the transmission of the shock, supporting the notion of an internal capital market operating within these banks.

The Sovereign Yield Curve and Credit Ratings in GIIPS

This paper studies the impact of sovereign credit rating and outlook changes on the shape of sovereign yield curve. The data sample consists of five peripheral European countries known as GIIPS (Greece, Ireland, Italy, Portugal and Spain) over the period of 01 January 2001 to 30 June 2016. We use dynamic Nelson-Siegel model to estimate the level, slope and curvature of yield curve and subsequently, Vector Autoregressive model to estimate the effect of sovereign rating and outlook changes on the sovereign yield curve. We find significant effect of rating downgrades and insignificant effect of rating upgrades in all the five countries; however, find mixed results for the effect of changes in outlook status. We find some peculiarity in the behavior of Portuguese yield curve that is explainable under preferred habitat theory. A battery of sensitivity tests also validates the results.

Macro news and bond yield spreads in the euro area

ABSTRACTThis paper analyses the effects of newspaper coverage of macro news on the spread between the yield on the 10-year German Bund and on sovereign bonds in eight countries belonging to the euro area (Belgium, France, Greece, Ireland, Italy, the Netherlands, Portugal and Spain) using daily data for the period 1999–2014. The econometric analysis is based on the estimation of a VAR-GARCH model. The results can be summarized as follows. Negative news have significant positive effects on yield spreads in all GIIPS (Greece, Ireland, Italy, Portugal and Spain) countries but Italy before September 2008; markets respond more to negative news, and their reaction has increased during the recent financial crisis. News volatility has a significant impact on yield spread volatility, the effects being more pronounced in the case of negative news and bigger in the most recent crisis period, especially in the GIIPS countries. Further, the conditional correlations between yield spreads and negative news increase in absolute value during the financial crisis (especially in the GIIPS countries), indicating a higher sensitivity of the former to the latter.

Sovereign and Hedge Fund Systemic Risks

To better explain the connection between hedge funds and sovereign risk in the Eurozone and to shed light on hedge fund dynamics relative to the surge in sovereign spreads, the authors introduce novel systemic risk measures for (1) Eurozone Core countries (France and Germany), (2) GIIPS (Greece, Ireland, Italy, Portugal, and Spain), and (3) the hedge fund industry. Using data on sovereign credit default swaps for France, Germany, Greece, Ireland, Italy, Portugal, Spain, and hedge fund indexes over the period from January 2008 to August 2013, the authors’ results provide new evidence about the connection between hedge funds and sovereign risk in the Eurozone. They find that the hedge fund sector contributed significantly to the rise of systemic risk for GIIPS and Core countries during the Greek crisis of 2010 and the Eurozone crisis of 2011.

Time-varying risk premium yield spread effect in term structure and global financial crisis: Evidence from Europe

The global financial crisis had a significant effect on the interest rates and the term structure of interest rates around the globe. In this paper we apply the GARCH-in-mean (GARCH-M) to study the effect of the global financial crisis on the term structure volatility, persistence of volatility, risk premium, and effects of the yield spread in five European markets; Portugal, Ireland, Italy, Greece and Spain (PIIGS). To the best of our knowledge this is the first such study in the field, and thus represents the main contribution of the paper to the literature. We investigate both the longer end and the shorter end of the term structure. We study two versions of the longer end based on the 10-year bond (long-term rate) and the two short-term rates, (three- and six-month rates). The shorter end of the term structure is based on the two short-term rates. Results indicate a substantial change in the term structure volatility, persistence of volatility, risk premium, and the effects of the yield spread due to the financial crisis. These results are found for both the longer end and the shorter end versions of the term structure.

Real unit labour costs in Eurozone countries: drivers and clusters

We examine the trajectories of the real unit labour costs (RULCs) in a selection of Eurozone economies. Strong asymmetries in the convergence process of the RULCs and its components—real wages, capital intensity, and technology—are uncovered through decomposition and cluster analyses. In the last three decades, the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) succeeded in reducing their RULCs by more than their northern partners. With the exception of Ireland, however, technological progress was weak; it was through capital intensification that periphery economies gained efficiency and competitiveness. Cluster heterogeneity, and lack of robustness in cluster composition, is a reflection of the difficulties in achieving real convergence and, by extension, nominal convergence. We conclude by outlining technology as the key convergence factor, and call for a wider strategy in labour market policies, which should be more oriented to promote the sources of productivity growth. JEL Classification numbers F43; F62; O47; O52

The Commonwealth of Nations and the EU after the ‘Global’ Crisis: Rethinking Post-2015 ‘Global’ Development?

The continuing ‘global’ crisis has accelerated divergences between regions, especially between the ‘rising’ global South, the European Union (EU) of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and Cyprus, which belongs to both the Commonwealth and the EU. This article studies the emerging ‘vertical’ divergences between the EU and the global South, especially around the so-called Economic Partnership Agreements, and the parallel ‘horizontal’ divergences among Anglophone, Francophone (the Organisation Internationale de la Francophonie) and Lusophone (the Comunidade dos Países de Língua Portuguesa) Commonwealths, with their inheritance of emulation and competition. It focuses on the possibilities of enhanced human/citizen security to propose an analysis that challenges established perspectives and points towards prospects for Commonwealth ‘schools’ of international relations/development.

Tweets, Google trends, and sovereign spreads in the GIIPS

We examine whether the information contained in social media (Twitter, Facebook, and Google blogs) and web search intensity (Google) influences financial markets. Using a multivariate system and focussing on Eurozone’s peripheral countries, the GIIPS (Greece, Ireland, Italy, Portugal, and Spain) as well as two of Eurozone’s core countries (France and the Nethelands), we show that social media discussion and search-related queries for the Greek debt crisis provide significant short-run information primarily for the Greek-German and Irish-German government bond yield differential even when other financial control variables (international risk, Eurozone’s risk, default risk, and liquidity risk) are accounted for, and to a much lesser extent for Portuguese, Italian, and Spanish sovereign yield differentials. Social media discussion and Google search–related queries for the Greek debt crisis do not affect spreads in France and the Netherlands.

Downside risk, portfolio diversification and the financial crisis in the euro-zone

This paper evaluates the value at risk for individual sovereign bond and national equity markets for 10 member countries in the euro-zone, using four estimation models and three accuracy criteria in addition to the daily capital requirements, for the full sample period and a subperiod that marks the beginning of the recent global financial crisis. The results show that the conditional extreme value theory model under both the normal and Student-t distributions satisfies the four accuracy criteria the best and gives the least capital charges for both periods, while the RiskMetrics gives the worst results. These euro-zone bond and equity markets are also classified into two groups: the PIIGS (Portugal, Italy, Ireland, Greece and Spain) and the Core (Germany, France, Austria, The Netherlands and Finland), and optimal portfolios are constructed for these two groups as well as for the ten euro area as a whole. Given the sample periods, the results show no strong diversification for any of the two groups or for the whole area in any of the bond and equity asset classes or both. The bond and equity portfolios are augmented with commodities and the best grand portfolio is the one that is diversified with the commodities gold, silver and oil, particularly for the subperiod.

Rebalancing the Euro Area: The Costs of Internal Devaluation

This paper investigates the economic costs of rebalancing current account positions in the Euro area by means of internal devaluation. Internal devaluation relies on wage suppression in the deficit countries. Based on an old Keynesian model we estimate a current account equation, a wage-Phillips curve and an Okun's Law equation. All estimations are carried out for a panel of twelve Euro area members. From the estimation results we calculate the output costs of reducing current account deficits. Greece, Ireland, Italy, Portugal and Spain (GIIPS) had, on average, current account deficits of 8.4% of GDP in 2007. To eliminate these current account deficits, a reduction of GPD by some 47% would be necessary. Trade imbalances can be resolved in two ways: deflationary adjustment in the deficit countries or inflationary adjustment in the surplus countries. The economic costs of deflationary adjustment to those countries are equivalent to the output loss of the Great Depression. An adjustment of the surplus countries would increase growth and it would come with higher inflation, but it would allow rebalancing without a Great Depression in parts of Europe.

Downside risk and portfolio diversification in the euro-zone equity markets with special consideration of the crisis period

This study examines the Value-at-Risk for ten euro-zone equity markets individually and also divided into two groups: PIIGS (Portugal, Italy, Ireland, Greece and Spain) and the Core (Austria, Finland, France, Germany and the Netherlands), employing four VaR estimation and evaluation methods considered over the full period and the pre- and post-global crisis subperiods 1 and 2. The backtesting results are also evaluated according to the Basel capital requirements. The results demonstrate that the CEVT methods meet all the statistical criteria the best for most individual equity indices over the full period, but these results over the two subperiods for those two methods are mixed, compared to those the DPOT methods. Moreover, the two optimal group portfolios of the PIIGS and the Core as well as the grand portfolio that combines the ten indices do not show much diversification benefits. The PIIGS portfolio selects Spain's IBEX only, while that of the Core opts for Austria's ATX only in the full period and subperiod 1. However, Germany's DAX overwhelmingly dominates both the Core and the Grand portfolios in subperiod 2.

Real Unit Labour Costs in Eurozone Countries: Drivers and Clusters

We examine the trajectories of the real unit labour costs (RULCs) in a selection of Eurozone economies. Strong asymmetries in the convergence process of the RULCs and its components – real wages, capital intensity, and technology – are uncovered through decomposition and cluster analyses. In the last three decades, the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) succeeded in reducing their RULCs by more than their northern partners. With the exception of Ireland, however, technological progress was weak; it was through capital intensification that periphery economies gained efficiency and competitiveness. Cluster heterogeneity, and lack of robustness in cluster composition, is a reflection of the difficulties in achieving real convergence and, by extension, nominal convergence. We conclude by outlining technology as the key convergence factor, and call for a renewed attention to real convergence indicators to strengthen the process of European integration.