European Stability Research Articles

On a lender of last resort with a central bank and a stability Fund

We explore the complementarity between a central bank and a financial stability Fund in stabilizing sovereign debt markets. The central bank pursuing its mandate can intervene with public sector purchasing programs, buying sovereign debt in the secondary market, provided that the debt is safe. The sovereign sells its debt to private lenders, through market auctions. Furthermore, it has access to a long-term state-contingent contract with a Fund: a country-specific debt-and-insurance contract that accounts for no-default and no-over-lending constraints. The Fund needs to guarantee gross-financial-needs and no-over-lending. We show that these constraints endogenously determine the ‘optimal debt maturity’ structure that minimizes the Required Fund Capacity (RFC) to make all sovereign debt safe. However, the Fund may have limited absorption capacity and fall short of its RFC. The central bank may be able to cover the difference, in which case there is perfect complementarity and the joint institutions act as an effective ‘lender of last resort’. We calibrate our model to the Italian economy and find that with a Fund contract its ‘optimal debt maturity’ is 2.9 years with an RFC of 90% of GDP, which is above what the European Stability Mechanism (ESM) could reasonably absorb, but may be feasible with an ECB Transmission Protection Instrument (TPI) intervention. In contrast, the average maturity of Italian sovereign debt has been circa 6.2 years, with a needed absorption capacity of around 105% of GDP, which may call for a maturity restructuring to ease the activation of TPI.

A database: How the euro crisis ended: Not with a (fiscal) bang but a whimper

A reform of the fiscal framework in the European Union is currently under discussion. The way ahead is yet unclear. In revisiting the importance of monetary and fiscal policy coordination to reduce uncertainty during the Eurozone Crisis, we add to this discussion a database that comprises daily official data on every policy action from 2007 to 2016 taken by the European Central Bank, the European Commission, and other governmental actors as a free download. Then, we investigate the effect of fiscal policy in an event-study analysis. We find that most measures designed to strengthen the existing Maastricht 1.0 framework of the European Monetary Union (e.g., fiscal compact) are not correlated with yield spreads reduction and do not have any causal effect on uncertainty. Events signaling out financial stability and financial assistance among European Monetary Union member states are likely to have that effect in comparison. After Germany's Bundestag ratified the European Stability Mechanism and when the Federal Constitutional Court approved its legitimacy, yield spreads of Greece, Ireland, Italy, Portugal and Spain significantly decreased.

Risk and Opportunity: Italy in the Troubled Mediterranean during the 1970s

During the Seventies, in the stormy Mediterranean theatre, many events endangered NATO’s positions all along the Southern flank and threatened to jeopardize the stability in Europe and thus the Détente itself. In this scenario, Italy played a dual role. On the one hand it contributed to increasing the risks of instability with its own internal instability. During the so-called Years of Lead, Italy was affected by social turbulence, political terrorism, and violence, while at the same time going through economic decline and skyrocketing inflation. In the meantime, a sharp increase of votes for the Italian Communist Party (PCI) ignited fears that the PCI might be close to taking power, thus being able to further weaken the Atlantic Alliance by pushing Italy out of it. On the other hand, Italy was pivotal in serving the interests of the Alliance in the Mediterranean, avoiding an alteration of the military balance in Southern Europe by keeping Malta from shifting towards the Soviet Union. The Italian-Maltese agreement signed in August 1980 was the climax of this process. In addition to literature, this paper relies on documents, both edited (Foreign Relations of the United States) and unedited (held by The National Archives in London, the NARA II in Washington D.C., the Gerald Ford Presidential Library in Ann Arbor, the Jimmy Carter Presidential Library in Atlanta, the Archivio Centrale dello Stato in Rome, and the National Archives in Rabat, Malta). Keywords: Italy, NATO, Mediterranean, Malta, United States, Cold War; Communist Question

Investor demand in syndicated EFSF/ESM bond issuances.

The European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) were set up at the peak of the European sovereign debt crisis to issue bonds and lend to countries under current funding stress. This study analyses investor demand in syndicated bond issuances of EFSF and ESM from 2014 to 2020 on an unprecedented granularity level using a dataset of individual orders with statistical inference. Particularly, we investigate orderbook dynamics for three main aspects: first, we determine the main factors segmenting investor demand. Second, we analyse price dynamics in the transactions and their relation to investor demand. Third, we investigate whether any indications of orderbook inflation might explain the increased volatility in orderbook volume. We identify issuance tranche and tenor as the main determinants of investor demand that are largely anticipated in the notional. Further, we note that ESM is doing economical pricing, where the new issue premium tends to be lower in a market context with larger demand. Lastly, we find a mixture of an increasing number and an increasing volume of orders as drivers of large order books. This confirms that there are no indications of orderbook inflation tendencies in the analysed time period.

Calling energy inequalities into the transition agenda

The presented perspective paper delivers insights into the complex problem of energy inequalities in the context of the Russian invasion of Ukraine. The war resulted in a loss of stability in Europe's energy system and increased social issues and difficulties in meeting energy transition targets. The perspective presented calls for a broader framework for analyzing energy inequalities. It delivers an attempt at such a framework through which three specific cases of energy transitions—Norway, Germany, and Poland—are investigated. These countries represent three energy regimes, different socioeconomic and energy systems, and face other challenges. Despite these differences, the outbreak of the war shows the need for a common policy agenda to avoid negative repercussions, such as social cohesion crises. Therefore, this paper argues that European solidarity, energy justice, and coherent policies are prerequisites if the goals of climate neutrality, energy stability, and a just energy system are to be achieved in each country and Europe.

The ESM Reform and Its Missing Legitimacy in Non-Euro Area Member States

The goal of this article is to analyse whether the European Stability Mechanism (ESM) and its current reform have been subjected to sufficient legal and democratic approval in non-euro area Member States. It is argued that the establishment of the ESM and the consequential obligation to accede to it after entering the euro area is at least to a certain extent legally and democratically underpinned by Article 136(3) Treaty on the Functioning of the European Union (TFEU). The establishment of the prospective euro area entrants’ obligation to join the ESM after adopting the euro is a manifestation of the normative value of Article 136(3) TFEU. However, the 2021 ESM reform has not been accompanied by a similar Treaty amendment and thus lacks legal and democratic legitimacy in non-euro area countries. This may have legal and political consequences for the obligation to adopt the euro in the affected countries. ESM, European Stability Mechanism Reform, ESM Treaty, Economic and Monetary Union, euro adoption, euro area entry criteria, Article 136 TFEU, democratic legitimacy

Exploring the Ripple Effect and Consequences of Correspondent Banking De-Risking on Global Financial Inclusion and Stability: Evidence from Europe

This study explored the ripple effect and consequences of correspondent banking de-risking on global financial inclusion and stability, with a specific focus on evidence from Europe. Driven primarily by increased compliance requirements and the need to mitigate risks associated with anti-money laundering and combating the financing of terrorism regulations, de-risking led to the termination of correspondent banking relationships with various countries and financial institutions. The research aimed to understand the implications of this phenomenon on financial integration, access to essential financial services, and the exacerbation of economic disparities among different regions and demographic groups in Europe. A descriptive research design approach was employed, mainly quantitative analysis of CBR data and regulatory changes. The findings demonstrated that de-risking had a significant negative impact on financial inclusion and stability, particularly for small and medium-sized enterprises, non-profit organizations, and marginalized communities. Moreover, the termination of CBRs disrupted the flow of remittances, trade finance, and development aid, and led to an increased reliance on less-regulated, informal channels, which in turn undermined the global AML/CFT regime and exacerbated financial crime and systemic risks. Based on these findings, the study recommended enhancing collaboration and coordination among regulatory authorities, financial institutions, and affected stakeholders to develop a harmonized regulatory framework across European countries, implement a risk-based approach, and establish a centralized information-sharing platform. Additionally, targeted capacity-building efforts, exploration of innovative financial solutions, and the development of financial inclusion strategies prioritizing the needs of the most vulnerable segments of the population were recommended to counteract the negative effects of de-risking and promote financial inclusion and stability in Europe. Keywords: Correspondent banking de-risking, financial inclusion, global financial stability, anti-money laundering, combating the financing of terrorism

Solidarische Tilgung der Staatsschulden im Euroraum

Abstract There is no getting around a reform of the European Stability and Growth Pact. However, there is no reform model under discussion that can be expected to enforce compliance with public budget discipline more effectively than before. With this in mind, this paper argues in favour of shifting the competence to impose sanctions in the event of non-compliant behaviour from the community level to the intergovernmental level. This would increase the credibility of the sanction threat. The shift would not mean abandoning the previously introduced fiscal rules.

Stability and Order in Europe Revisited: Lessons since 1945

This paper revisits the question of the international structure and political stability in Europe before and after 1945. It is argued that there were relations between the international political system and political stability in Europe during the two periods: the period from 1900 to 1945 and from 1945 to 1989. Instructive lessons from global political history and Mearsheimer's Neorealism have shown the instability of multipolarity in the present decline of the US order. This is because the international political structure strongly influenced the degree of stability in Europe. The different global political structure affected the different levels of stability before and after 1945. The bipolar structure strongly influenced and determined Europe's power configuration and stability after 1945. The instability of Europe before 1945 was strongly related to the multipolarity structure; there were many great powers, and the existence of multiple polarities with seven great powers posed difficulty in managing them. Thus, striking a balance between them was nearly impossible and was a lesson for today's reading of international politics.

Hierarchical tendencies, functional specializations, and (in)stability across European banking centers

Drawing on conceptual research exploring how evolving geographies of finance inform urban and regional change, we examine the size and functional scope of the presence of leading global banks across functional urban areas in Europe. Based on data for 100 major global banks, we find that their overall presence is proportional to (the square root of) the national gross domestic product. London and Luxembourg host far more banks than can be explained by their national gross domestic product, which can be traced back to their export of banking services. We also analyze the geographies of specialized banking services per city. Corporate and investment banking are mainly explained by national gross domestic product, with London emerging as the most prominent center. Private banking and securities services, in turn, are largely independent of national gross domestic product and rely on the importance of small and specialized economies such as Luxembourg and St Helier (Jersey). The stability of Europe’s banking centers is underpinned by their role as the national banking center and/or their specialization in international banking services, as well as manifested in specialized subnetworks of financial centers.

Public Health Teaching Books (Open Access)

European Stability Pact for South Eastern Europe Funded by Germany 2001-2010 PUBLIC HEALTH TEACHING BOOKS (1st edition) PUBLISHED OPEN ACCESS Health Systems and Their Evidence Based Development (578 pages) Management in Health Care Practice (672 pages) Health Promotion and Disease Prevention (806 pages) Health Determinants in the Scope of New Public Health (633 pages) Public Health Strategies: A Tool for Regional Development (647 pages) Methods and Tools in Public Health (1014 pages)

How to minimize negative health effects in the European Union due to the Economic recession caused by the COVID-19 Pandemic

Aims: The article aims to analyze what can be learned from the last Financial Crisis from 2008 on to minimize the negative health effects in the European Union due to the Economic recession caused by the Covid-19 Pandemic. Methods: Systematic literature reviews were conducted to analyze the interventions taken to combat the last Financial Crisis and their consequences on health. Parallel to this, a qualitative document analysis of the ongoing discussion about the measures taken or to be taken in the Covid-19 Pandemic to fight the current economic recession was conducted using institutional websites and international media. Results: The main methods taken to combat the Financial Crisis from 2008 were, bailing out banks, austerity measures, and the European Stability Mechanism. There is evidence that the Financial crisis had negative effects on the European Health Systems in general. Austerity measures in some countries, led to an increase in psychological disorders. Overall mortality was not affected but the decrease of avoidable mortality slowed down. Various economic interventions such as bailing out essential industries e.g., the Aviation sector, cash injections, tax relief, short-work salary compensation, modified ESM, and the Pandemic Emergency Purchase Program (PEPP) were taken during the Covid-19 Pandemic to help stabilize the economy. Conclusion: The current recession is not caused by internal failures of the financial system as it was in the financial Crisis of 2008, but by an outside event - the Covid-19 pandemic. Measures were taken by the governments and the European Union to avoid an economic crisis, and by these, the negative health effects were created during the Financial Crisis in 2008, but the lockdown phase seems to lead to similar negative health effects regarding psychological disorders and delay of planned screening and treatment.

Factors of the impact of Britainʼs withdrawal from the European Union on Ukraine and Europe. Ukrainian-British relations in the late 20th and early 21st centuries

The functioning of the union of countries with various political, economic, social, and cultural orientations is an important question, which lies in the feasibility of such a union. The United Kingdom is one of the countries that had a peculiar national development strategy that became inconsistent with the pan-European direction. Resolving the problems that have arisen within the framework of cooperation between the UK and the European Union is important to ensure the continued future existence of the EU and to maintain stability in Europe as a whole. The disadvantages and problems that resulted from Brexit could have a major impact on the EU, as the UK was one of the largest and most influential members of the EU. The purpose of this study was to examine the consequences of Britainʼs withdrawal from the EU for Ukraine and Europe as a whole. It is also possible to explore potential opportunities for further development of relations between Ukraine and the UK, given the new conditions after the UKʼs exit from the EU. The study used such scientific methods as chronological, comparative, and historical, systematisation, analysis and synthesis, generalisation, and graphical. The main results of the study of the topic are to determine the history of Britainʼs existence in the European Union, to substantiate the specific features of political behaviour in the Union, to identify the reasons and factors that influenced the countryʼs withdrawal from the European Union. One of the tasks was to investigate the direction of the UKʼs international strategy towards Ukraine. The study analysed the development of Ukrainian-British relations in the late 20th and early 21st centuries. The paper described the consequences of Britainʼs withdrawal for Europe and Ukraine. The study showed the directions of Britainʼs foreign policy towards Ukraine in 1992-2016. The problems and prospects of Ukrainian-British relations after Britainʼs withdrawal from the European Union were considered. This study can help communications professionals understand how to communicate Brexit to the general public in Ukraine and Europe. The study can also help in understanding how to interact with British colleagues working in the field of international relations and trade

Expansionary monetary policy vs. bank concentration: The Eurozone & other European countries

Expansionary monetary policy, combined with unconventional measures, led to a decline in the profitability of U.S. and European banks. In this paper, we study whether such measures also affected the asset concentration in the European banking sector. The findings of this research add value to previous research, taking a step deeper into examining the consequences of expansionary monetary policy. We find that reductions in the ECB?s key policy rate can predominantly explain the concentration growth in the Eurozone countries. The ECB?s monetary policy had a more substantial influence on the growth of the concentration of banks outside the Eurozone than the own monetary policies of those countries. In this way, expansionary monetary policy poses specific challenges to financial stability in Europe.

Umschuldungsklausel bei Anleihen der Euro-Staaten

A speciality of contracts seems to be the small print - also in contracts between the members of the European Union. The European Stability Mechanism Treaty (ESM), concluded with the purpose to install the ESM as an international financial institution and as backstop for the Single Resolution Fund (SRF), contains in one of its articles the inconspicuous reference to a mandatory majority action clause. This clause will be modified together with the prepared amendment of the ESM treaty. This amendment offers the perfect opportunity to describe Collective Action Clauses like majority action clauses - facilitating the restructuring of debt - in general and in particular those for sovereign debt of the Euro countries including their effects on the creditors position taking into account the role of the ECB as major creditor.

Effectiveness and counter‐cyclicality of fiscal consolidation under compliance regulation: The case of the Stability and Growth Pact

AbstractIn this study we examine the impact of the European Stability and Growth Pact (SGP) on narratively identified fiscal adjustments whose prime focus is to reduce the budget deficit and compare the effects with those on the primary and the structural budget balance. The cross section of EU and non‐EU economies and the sample period 1980–2014 allow for an assessment of the SGP regarding its effectiveness, cyclicality, and the type of fiscal adjustments (tax hikes vs. spending cuts) as compared with counterfactual scenarios. Our findings indicate that the SGP has effectively boosted budget consolidation measures identified by means of the narrative approach, whereas it had no overall impact on the primary and an overall minor impact on the structural budget balance. However, the effectiveness of the SGP has varied considerably over time. All measures indicate that the SGP was particularly effective in the period after the introduction of the Euro, except for the 2 years following the financial crisis in 2008. We find no evidence that fiscal policy has become more procyclical under the SGP. Finally, fiscal consolidation under the SGP favors spending cuts, whereas the application of tax hikes shows no sizeable differences as compared with the reference group.

Design Buckling Resistance of High Strength Steel Members

AbstractEN 1993‐1‐1 gives stability design rules for columns, beams and beam‐columns up to S460, whereas EN 1993‐1‐12 gives additional guidance for S500 up to S700 (based mainly on numerical work available at the time). Recent studies on flexural buckling of welded H, I and box columns in steel grades S460 to S960, even though limited, show that improved curves can be used for members in high strength steel (HSS). The research project RUOSTE also reported improved buckling curves for HSS box and tubular sections compared to those in Table 6.2 of EN 1993‐1‐1. This improved behaviour is usually attributed due to the improved material properties but mainly due to the more favourable residual stress distribution.Recently, within the European Project STROBE evaluation of the European stability design rules was carried out covering columns, beams, and beam‐columns. The research was based on experimental programme covering 20 full‐scale tests, residual stress measurements, advanced numerical models, analytical derivations, and statistical evaluation. Finally, it was possible to provide new, more relaxed recommendations for the buckling curve selection for HSS members.This paper provides a summary of the project conclusions regarding the stability design of steel members in high strength steel, where firstly a brief overview of the experimental results is presented, followed by the numerical parametric study, results evaluation, and discussion.

Banking Nationalism and Resolution in Italy and Spain

AbstractThis article contributes to the comparative literatures on varieties of financial capitalism, economic nationalism and bank resolution with a focus on Spain and Italy's management of bank insolvency and resolution between 2008 and 2018. Both countries' alternative banks faced enormous challenges through prolonged economic decline and declining loan repayments, both turned to depositors to become investors in lieu of attracting arm's-length investors to inject capital, and both had strong connections with local political authorities that resisted bank reform. But Spanish banks were restructured successfully in accordance with EU law while local government ties complicated Italian resolutions. We explain this outcome through two factors: state strength buttressed by outside assistance from the European Stability Mechanism; and strong international marketization, which enhanced the drive to restructure quickly. Spain's decision to ask for loans from the European Stability Mechanism to help restructure its heavily marketized savings banks allowed it to finish reforms after 2012.

Theoretical Foundations of Political and Legal Norms of the European Union in the Field of the National Minorities’ Rights Protection

The article analyzes the origins of contradictions between the actors of ethnopolitical processes amid the protection of national minorities and the connection of these phenomena with the relevant political and legal norms of the European Union. This international organization, on the one hand, strives to ensure peace and stability in Europe and, on the other hand, advocates the implementation of the principles of the rule of law, democracy and human rights in the practice of social relations of states that are its members or which express interest in integration. This requires the EU to pay special attention to the problems of inter-ethnic relations as an area with high conflict potential. Accordingly, European institutions have created a system of norms, the implementation and following of which are designed to reduce or eliminate negative scenarios of the development of such processes. The author defines the main subjects of inter-ethnic relations – host states, national minorities and kin states, in contacts between which contradictions may arise at the domestic and foreign policy levels. Attention is paid to the possible strategies of EU influence on the relations between such actors to find acceptable solutions and ensure social cohesion.

Short-selling restrictions and financial stability in Europe: Evidence from the Covid-19 crisis

In March 2020, six European countries imposed temporary short-selling bans to prevent further stock price declines, to reduce volatility, and to ensure financial stability during the Covid-19 pandemic, whereas other countries abstained from implementing these restrictions. We examine the effects of these regulatory interventions on stock returns and market quality for major European countries with and without bans. Our results reveal that restricting short selling did not stabilize stock prices but adversely affected market liquidity, as reflected in wider bid-ask spreads and lower turnover. In addition, smaller stock markets and smaller firms suffered more from the deterioration in market quality. Using logit regressions, we investigate the determinants for the probability that a country would impose short-selling restrictions. The results suggest that countries with weaker economies, lower fiscal capacity, less financial development, and stricter lockdown measures were more likely to adopt a ban. Overall, short-selling bans during the Covid-19 crisis negatively affected market quality and consequently regulators in general should abstain from implementing such restrictions in the future.