The European Debt Crisis: A Brief Discussion of its Causes and Possible Solutions
TL;DR: In this paper, the authors define primary sources of European debt crisis and identify the facts to be taken into account when providing solutions, including heterogeneity of Eurozone countries, the lax fiscal policy and the application of different monetary policies.
About: This article is published in Procedia - Social and Behavioral Sciences.The article was published on 2016-05-31 and is currently open access. It has received 6 citations till now. The article focuses on the topics: Fiscal union & Debt crisis.
Citations
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TL;DR: In this paper, a comprehensive overview of post-crisis regulatory research publications is presented, which can be roughly divided into three overarching clusters: publications identifying causes of the crisis, articles focusing on policy and reform reactions, and literature investigating whether these reforms fit their purpose.
37 citations
30 May 2018
TL;DR: In this article, the authors investigate the effects of fiscal policy on economic growth under contributions from the differences in institutions and external debt levels, and propose the non-linear relationship of fiscal growth effects in emerging economies under the dynamic of debt levels.
Abstract: Purpose
The effectiveness of fiscal policy is an interesting field in literature of macroeconomics. The purpose of this paper is to investigate the effects of fiscal policy on economic growth under contributions from the differences in institutions and external debt levels.
Design/methodology/approach
The authors use panel data from 2002 to 2014 from 20 emerging markets and use GMM estimators for unbalanced panel data.
Findings
The results show positive growth effects of fiscal policy across emerging markets in the examined periods. Notably, the improvement in institutions promotes higher crowding-in effects of fiscal policy. In addition, this paper finds interesting evidences that the external debt has non-linear effects on economic growth, whereas the heterogeneous effects of fiscal policy on economic growth as positive effects in low indebted level and negative effect in high indebted level may explain the mechanism of this non-linear relationship.
Originality/value
This study proposes the non-linear relationship of fiscal growth effects in emerging economies under the dynamic of debt levels.
36 citations
Cites background from "The European Debt Crisis: A Brief D..."
...Introduction The field of the effectiveness of fiscal policy has re-highlighted in light of the 2008 global financial crisis with the new contemporary drivers such as external debt (Ruščáková and Semančíková, 2016)....
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...The field of the effectiveness of fiscal policy has re-highlighted in light of the 2008 global financial crisis with the new contemporary drivers such as external debt (Ruščáková and Semančíková, 2016)....
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01 Jan 2019
TL;DR: In this article, a new theory to explain the business cycle and economic growth is presented, which is subsequently derived rigorously by using economic models, and the implications of the new theory are also discussed.
Abstract: Starting from an investigation into the nature of business cycles, Chapter 4 illustrates a new theory to explain business cycle and economic growth. This theory is subsequently derived rigorously by using economic models. The implications of the new theory are also discussed. The chapter ends with a demonstration of empirical evidence relevant to the new theory.
7 citations
TL;DR: In this paper, the authors determined major indicators of the Greek crisis that started in 2009 and the effects of which can still be observed, including inflation and gross savings based on probit method.
Abstract: The purpose of this study is to determine major indicators of the Greek crisis that started in 2009 and the effects of which can still be observed. In this regard, 8 independent variables were applied so as to fulfill the objective. Besides, the annual data between the years 1984 and 2016 was analyzed with Probit model. As a consequence of this study, it was concluded that inflation and gross savings are the leading meters of Greek crisis based on probit method. On the other hand, according to the MARS results, 3 different variables are identified as the indicators of the debt crisis in Greece. It is concluded that there is a negative relation between financial crisis with saving ratio and current account balance. Additionally, it is also identified that high unemployment ratio leads to financial crisis. While comparisng the results of these two approaches, it is concluded that MARS is much more successful than the probit method to predict the debt crisis in Greece. It is strongly recommended that saving ratio should be increased in Greece. For this purpose, governments should take some actions in order to increase this ratio more than 15.5%. Within this framework, media channels can be used by the government to tell the people about the importance of the savings to have sustainable economic development.
6 citations
Cites background from "The European Debt Crisis: A Brief D..."
...P ag e3 7 P ag e3 7 Ruscakova and Semancikova (2016) Europe Descriptive Statistic Uncontrolled fiscal policy and monetary policies lead to financial crisis....
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TL;DR: In this paper, the authors analyze the behavior of 30 global equity markets and compute multiple spillover measures, which encapsulate many large and small crises episodes, and detect newly emerging contagion in the system.
Abstract: Differentiating between ‘good’ and ‘bad’ spillovers we disentangle sources of potential crisis from the intricately complex web of connections across international equity markets. In particular, we analyze the behaviour of 30 global equity markets and compute multiple spillover measures, which encapsulate many large and small crises episodes. Instead of relying on ex–post-crisis information, our model identifies crises periods. Moreover, we are able to detect newly emerging contagion in the system.
2 citations
References
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TL;DR: The origin and propagation of the European sovereign debt crisis can be attributed to the flawed original design of the euro as discussed by the authors, and there was an incomplete understanding of the fragility of a monetary union under crisis conditions, especially in the absence of banking union and other European-level buffer mechanisms.
Abstract: The origin and propagation of the European sovereign debt crisis can be attributed to the flawed original design of the euro. In particular, there was an incomplete understanding of the fragility of a monetary union under crisis conditions, especially in the absence of banking union and other European-level buffer mechanisms. Moreover, the inherent messiness involved in proposing and implementing incremental multicountry crisis management responses on the fly has been an important destabilizing factor throughout the crisis. After diagnosing the situation, we consider reforms that might improve the resilience of the euro area to future fiscal shocks.
839 citations
TL;DR: In this article, the authors show that post-bailout changes in sovereign CDS explain changes in bank CDS even after controlling for aggregate and bank-level determinants of credit spreads.
Abstract: We model a loop between sovereign and bank credit risk. A distressed financial sector induces government bailouts, whose cost increases sovereign credit risk. Increased sovereign credit risk in turn weakens the financial sector by eroding the value of its government guarantees and bond holdings. Using credit default swap (CDS) rates on European sovereigns and banks, we show that bailouts triggered the rise of sovereign credit risk in 2008. We document that post-bailout changes in sovereign CDS explain changes in bank CDS even after controlling for aggregate and bank-level determinants of credit spreads, confirming the sovereign-bank loop.
535 citations
TL;DR: In this article, a detailed empirical investigation of the EMU sovereign-debt crisis is presented, where the authors find a marked shift in market pricing behavior from a "convergence-trade" model before 2007 to one driven by macro-fundamentals and international risk thereafter.
322 citations
Posted Content•
01 Jan 2009
TL;DR: In this article, the authors provide an empirical analysis of the determinants of government bond yield spreads in the euro area with a focus on developments during the global financial crisis that started in 2007.
Abstract: This paper provides an empirical analysis of the determinants of government bond yield spreads in the euro area with a focus on developments during the global financial crisis that started in 2007. In line with the previous literature, we find that international factors, in particular general risk perception, play a major role in explaining governments bond yields differentials. While domestic factors such as liquidity and sovereign risk appear to be smaller but non-negligible drivers of yield spreads our results point to significant interaction of general risk aversion and macroeconomic fundamentals. Moreover, the impact of domestic factors on bond yield spreads increase significantly during the crisis, when international investors started to discriminate more between countries. In particular, the combination of high risk aversion and large current account deficits tend to magnify the incidence of deteriorated public finances on government bond yield spreads. Overall, our results suggest that an improvement in global risk perception will lead to a narrowing of intra-euro area bond yield differentials. However, the differing impact of the crisis on Member States' public finances and the expected higher risk awareness of investors after the crisis could keep government bond yield spreads at a higher level then in the pre-crisis period.
273 citations
Posted Content•
TL;DR: This article examined the spillover effects of sovereign rating news on European financial markets during the period 2007-2010 and found that sovereign rating downgrades have statistically and economically significant spillover effect both across countries and financial markets.
Abstract: This paper examines the spillover effects of sovereign rating news on European financial markets during the period 2007-2010. Our main finding is that sovereign rating downgrades have statistically and economically significant spillover effects both across countries and financial markets. The sign and magnitude of the spillover effects depend both on the type of announcements, the source country experiencing the downgrade and the rating agency from which the announcements originates. However, we also find evidence that downgrades to near speculative grade ratings for relatively large economies such as Greece have a systematic spillover effects across Euro zone countries. Rating-based triggers used in banking regulation, CDS contracts, and investment mandates may help explain these results.
271 citations