Canale, Rosaria Rita (2011): Default risk and fiscal sustainability in PIIGS countries.
Download (220kB) | Preview
European Monetary Union experiences the division into two major blocks according to their ability to respect fiscal criteria and replace their bonds on the market. The so-called PIIGS countries are asked to hardly reduce their deficit and debt in order to prevent speculative attacks and preserve the Currency Union. The aim of the paper is to show that speculative attacks on government debt are not directly linked to default probability, but to liquidity requirements and to the EU fiscal constraints. In times of crisis the path of deficit/GDP ratio goes up and send the signal that governments are loosening their fiscal stance. As far as there are liquidity constraints, markets increase the spreads and force governments to fiscal retrenchments, hardly increasing the cost of adjustment. The result is that in the absence of a bailout shared mechanism financial markets give policy prescriptions and exert a political pressure without having fiscal sovereignty.
|Item Type:||MPRA Paper|
|Original Title:||Default risk and fiscal sustainability in PIIGS countries|
|Keywords:||Fiscal policy, sovereign debt crisis, EMU|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination
F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions
|Depositing User:||Rosaria Rita Canale|
|Date Deposited:||13. Jul 2011 14:57|
|Last Modified:||20. Feb 2013 07:32|
Amadei L., Di Rocco S., Gentile M., Grasso R., Siciliano G (2011) I credit default swap. Le caratteristiche dei contratti e le interrelazioni con il mercato obbligazionario, Consob, Discussion Paper . Arestis, P. (2005) Fiscal policy within the new consensus macroeconomic policy, Working Paper, UK Treasury. Arestis, P. and M. Sawyer (2005) “What is the new consensus in macroeconomics?”, in P. Arestis (ed.), Is there a new consensus in macroeconomics?, Houndmills, Basingstoke: Palgrave Macmillan. Arestis, P. and M. Sawyer (2003) Macroeconomic policies of the Economic Monetary Union: Theoretical underpinnings and challenge, Working Paper no. 385, The Levy Economics Institute of Bard College, NY. Arestis, P., K. McCauley and M. Sawyer (2001), “Commentary. An alternative stability pact for the European Union”, Cambridge Journal of Economics, 13: 13-130. Arezki, R, B Candelon, and A Sy (2011), “Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis”, IMF Working Paper, 11/69, March Barrios S. & S.Langedijk & L. Pench, (2010). EU fiscal consolidation after the financial crisis. Lessons from past experiences, European Economy - Economic Papers 418, Directorate General Economic and Monetary Affairs, European Commission. Barro, R. (1974) “Are government bonds net wealth?”, Journal of Political Economy, 82. Bernoth K. & Wolff G.B., (2008). Fool The Markets? Creative Accounting, Fiscal Transparency And Sovereign Risk Premia," Scottish Journal of Political Economy”, Scottish Economic Society, vol. 55(4), pages 465-487, Blanchard OJ (2009), ‘The crisis: basic mechanism and appropriate policies’, MIT Department of Economics Working Paper Series 09-01 Calvo, G. (1988), “Servicing the Public Debt: The Role of Expectations”, American Economic Review, 78(4):647-661 Cantor, R., and F. Packer (1996), Determinants and Impacts of Sovereign Credit Ratings, Economic Policy Review, Federal Reserve Bank of New York, Vol. 2 (October), pp. 37–53 Davidson P. 2008. “Is the Current Financial Distress Caused by the Subprime Mortgage Crisis a Minsky Moment? Or Is It the Result of Attempting to Securitize Illiquid Non commercial Mortgage Loans?” Journal of Post Keynesian Economics 30, no. 4 (Summer): 669-676. De Grauwe P. (2010) How to embed the Eurozone in a political union, in VoxEU.org, De Grauwe, P (2011), “The Governance of a Fragile Eurozone”, voxEU.org, De Grauwe, P, and W Moesen (2009), “Gains for All: A Proposal for a Common Eurobond”, Intereconomics, May/June De.Cecco M., 2009, “Il ricatto della grande finanza [The Blackmail of Big Finance]”, La Repubblica Financial Supplement 14-9-2009 Delpla, J, and J von Weizsäcker (2010), “The Blue Bond Proposal”, Bruegel Policy Brief, May. Eichengreen, B, R Hausmann, U Panizza (2005), “The Pain of Original Sin”, in B Eichengreen, and R Hausmann, Other people’s money: Debt denomination and financial instability in emerging market economies, Chicago University Press Giavazzi, F. and M. Pagano (1996) “Non Keynesian effects of fiscal policy changes: International evidence and the Swedish experience”, Swedish Economic Policy Review, vol. 3, no. 1, Spring 1996, pp. 67-103. Gros, D, and T Mayer (2010), “Towards a European Monetary Fund”, CEPS Policy Brief.. Guichard S. Haugh D.Turner D. (2009). Quantifying the Effect of Financial Conditions in the Euro Area, Japan, United Kingdom and United States, “OECD Economics Department Working Papers 677, OECD Publishing. Jeanne, Olivier. 1997. Generating real persistent effects of monetary shocks: How much nominal rigidity do we really need? European Economic Review 42, no. 6: 1009–32, June. Juncker, J-C and G Tremonti (2010), “E-bonds would end the crisis”, The Financial Times, 5 December. Kopf, C. (2011), “Restoring financial stability in the euro area”, 15 March, CEPS Policy Briefs. Wolf, M (2011), “Managing the Eurozone’s Fragility”, The Financial Times, 4 May. Krugman, P. (2009), “A continent adrift”, Herald Tribune, 16 March 2009. Natixis (2010), Could an OECD country default on its sovereign debt? In our opinion the answer Obstfeld 1986b. Speculative attack and external constraint in a maximizing model of the balance of payments. Canadian Journal of Economics 19, no. 1: 1–22. Obstfeld M.. 1986a. Rational and self-fulfilling balance of payment crises. American Economic Review 76, no. 1: 72–81. Papadimitriou, D. and G. Hannsgen. 2009. “Recent Rise in Federal Government and Federal Reserve Liabilities: Antidote to a Speculative Hangover.” Levy Economics Institute of Bard College Strategic Analysis April 2009/2. Rochon L.-P., and S. Rossi. 2007. “Central Banking and Post Keynesian Economics.”Review of Political Economy. Sgherri S. & Zoli E., 2009. Euro Area Sovereign Risk During the Crisis, IMF Working Papers 09/222, International Monetary Fund.. Spadafora, F. (1999). Recenti modelli di crisi valutarie. Politica Economica 15, no. 1: 93–132