A Proper Yield Curve for Greece to Kick-Start Financial Intermediation. ECMI Policy Brief No. 21, 10 December 2013

At present, the market is severely mispricing Greece’s sovereign risk relative to the country’s fundamentals. As a result of the mispricing, financial intermediation in Greece has become dysfunctional and the privatisation of state-owned assets has stalled. This mispricing is partially due to an illiquid and fragmented government yield curve. A well-designed public liability management exercise can lead to a more efficient pricing of Greece’s government bonds and thereby help restore stable and affordable financing for the country’s private sector, which is imperative in order to overcome Greece’s deep recession. This paper proposes three measures to enhance the functioning of the Greek government debt market: i) Greece should issue a new five-year bond, ii) it should consolidate the 20 individual series of government bonds into four liquid securities and iii) it should offer investors a swap of these newly created bonds into dollar-denominated securities. Each of these measures would be beneficial to the Hellenic Republic, since the government would be able to reduce the face value and the net present value of its debt stock. Furthermore, this exercise would facilitate the resumption of market access, which is a necessary condition for continuous multilateral disbursements to Greece.

Is Europe vulnerable to Russian gas cuts? CEPS Commentaries, 12 March 2014

The EU relies heavily on imports to meet its demand for natural gas. Nearly 23% of the gas burned by the EU member states is produced in Russian gas fields. Ukraine remains one of the main supply routes for Russian gas flowing into Europe. Consequently, mounting tensions between Russia and Ukraine concerning the Crimean Peninsula brought back memories of past gas supply disruptions, most notably of 2009. The question today is whether the EU in 2014 is equally vulnerable to potential (forced or voluntary) cuts in Russian gas supplies as it was five years ago. In this commentary, Arno Behrens and Julian Wieczorkiewicz look into two different scenarios. First, could Europe sustain longer cuts in gas supplies from Russia? And second, what impact would disruptions of Russian gas deliveries to Ukraine have on the EU? Essentially the authors argue that Russia is highly dependent on gas exports to Europe, while Europe could resort to alternatives to Russian gas. In addition, Europe is much better prepared for potential short-term supply disruptions than it was five years ago.