Slovakia: the Eurogroup’s enfant terrible. OSW Commentary No. 63, 2011-10-14

When Slovakia’s parliament rejected the European Financial Stability Facility (EFSF) reform on 11 October it undermined Slovakia’s reputation as a credible partner within the EU. Moreover, Prime Minister Iveta Radicova combined the vote on the strengthening of the EFSF – a key anti-crisis mechanism in the Eurozone – with a vote of confidence for her cabinet. This eventually led to the collapse of the government. Before Slovakia’s decision, the strengthening of the EFSF had been endorsed by the national parliaments of all the eurozone countries. Slovakia, which had opted to be the last one to carry out the ratification procedure, adopted the EFSF reform only in a re-vote on 13 October, due to the support of the opposition left-wing party. However, problems with ratification have cast a shadow over the achievements of Slovakia which as one of the freshest members of the eurozone had been actively seeking to influence the creation of EU mechanisms for dealing with the debt crisis. For the past eighteen months the Slovak government, formed by conservative and liberal parties, has consistently called for the controlled bankruptcy of Greece, a tightening of the rules of the Stability and Growth Pact, and for the private sector’s participation in financing the rescue packages for indebted states. It was in part down to Slovakia that these proposals, previously regarded as extreme, were introduced into the mainstream EU debate. The constructive position presented by Slovakia’s diplomacy in recent months has brought Bratislava tangible results, such as the reduction of its contribution to the permanent anti-crisis fund, the European Stabilisation Mechanism (ESM). Thus Slovakia, which adopted the single currency on 1 January 2009, has become an informal spokesman for the new, poorer members of the eurozone.

The role of politicians in inciting financial markets to attack the eurozone. EuropEos Commentary No. 4, 21 June 2010

While acknowledging that the sustainability of sovereign debt is a serious issue that must be confronted, this EuropEos Commentary finds that financial markets have blown the problem completely out of proportion, leading to a full-scale confidence crisis. The authors present evidence suggesting that politicians’ public disagreements and careless statements at critical junctures may have added oil to incipient fire. By creating the impression that domestic political interests would take precedence over orderly management of the Greek debt crisis, they raised broader doubts about their ability to address fundamental economic divergences within the area, which are the real source of debt sustainability problems in the medium term.

Hegemony Without Stability: The fiscal and political vulnerabilities of monetary union. ACES Cases No. 2011.2

The crisis has forced the Euro area to establish an emergency fund that supports member states experiencing a sovereign debt crisis. The difficulties of coming up with such a fund for Greece and other Euro area members stands in marked contrast to the balance of payments support that non-Euro members like Hungary received, swiftly and quietly. In order to solve this puzzle, we first establish the difference between EU interventions and IMF programs and, second, trace the evolution of crisis management with France and Germany in the lead. The lens of hegemonic stability theory suggests that the Franco-German leadership is too weak to provide stability and the extensive use of conditionality is one symptom of this weakness. Providing incentives for cooperation "after hegemony" (Keohane) is the unresolved issues troubling the monetary union. Its dominant powers must acknowledge that markets perceive monetary union to be already politically more integrated than its lack of fiscal integration suggests.

EU Enlargement: Lessons from, and Prospects for. IES WORKING PAPER 3/2013

In 2009 the European Union (EU) reached a crucial moment in its history, in which the terms Europe and crisis became conjoined: the European sovereign-debt crisis, or Euro-crisis. Yet enlargement remains on the agenda, with the EU’s next enlargement starting on 1st July 2013 with the accession of Croatia, Iceland and FYROM looking set to follow in the near future, and probably other Western Balkan states and possibly Turkey in the long term. Enlargement therefore will soon come back into focus. Focusing on climate and energy security policy, this working paper first reflects upon the impact of the 2004/2007 enlargement on the EU. A reflection on the EU’s recent past with some of the lessons that can be learnt then follows, with a consideration that predictions of decision- and policy-making gridlock were not realised, that newer member states have proved influential, and that prospective member states cannot be expected to be passive nor impotent. The latter part of this paper evaluates the potential prospects and outcomes of these lessons with regard to future enlargement from within (Scotland and Catalonia), and without (Turkey), and the political factors which may dictate whether these possible enlargements are realised.

The Greek Austerity Myth. CEPS Commentary, 10 February 2015

Since Syriza’s victory in Greece’s recent general election, some fear a return to the uncertainty of 2012, when many thought that a Greek default and exit from the eurozone were imminent and that a Greek debt crisis could destabilise – and perhaps even bring down – Europe’s monetary union. CEPS Director Daniel Gros explains in this CEPS Commentary how this time really is different.

A macro-financial analysis of the euro area sovereign bond market. National Bank of Belgium Working Paper No. 259, June 2014

We estimate the 'fundamental' component of euro area sovereign bond yield spreads, i.e. the part of bond spreads that can be justified by country-specific economic factors, euro area economic fundamentals, and international influences. The yield spread decomposition is achieved using a multi-market, no-arbitrage affine term structure model with a unique pricing kernel. More specifically, we use the canonical representation proposed by Joslin, Singleton, and Zhu (2011) and introduce next to standard spanned factors a set of unspanned macro factors, as in Joslin, Priebsch, and Singleton (2013). The model is applied to yield curve data from Belgium, France, Germany, Italy, and Spain over the period 2005-2013. Overall, our results show that economic fundamentals are the dominant drivers behind sovereign bond spreads. Nevertheless, shocks unrelated to the fundamental component of the spread have played an important role in the dynamics of bond spreads since the intensification of the sovereign debt crisis in the summer of 2011

The European Union’s Democratic Deficit and Options for EU Democracy in the 21st Century. EU Centre Singapore Working Paper No. 22, August 2014

The European Union (EU) is widely acknowledged as a successful example of economic and political integration of nation states today – a slate of democratic institutions such as the European Parliament have also been developed and European citizens now possess extensive political and civil rights by virtue of the introduction of European citizenship. Nevertheless, the EU is said to suffer from a so called “democratic deficit” even as it seeks deeper and closer integration. Decades of institutional design and elite closed-door decisions has taken its toll on the inclusion and integration of European citizens in social and political life, with widening socio-economic inequalities and the resurgence of extreme-right parties during in the wake of the debt crisis in the Eurozone. This paper attempts to evaluate the democratic development of the EU through the use of a process-oriented approach, and concludes at the end with discussions on the various options that the EU and its citizens can take to reform democratic processes and institutions in Europe.

The Monetary Policy of the European Central Bank (2002-2015). CEPS Special Report No. 109/May 2015

This paper examines the policies pursued by the European Central Bank (ECB) since the inception of the euro. The ECB was originally set up to pursue price stability, with an eye also to economic growth and financial stability as subsidiary goals, once the primary goal was secured. The application of a single monetary policy to a diverse economic area has entailed a pronounced pro-cyclicality in its real economic effects on the eurozone periphery. Later, monetary policy became the main policy instrument to tackle financial instability elicited by the failure of Lehman Brothers and the sovereign debt crisis in the eurozone. In the process, the ECB emerged as the lender of last resort in the sovereign debt markets of participating countries. Persistent economic depression and deflation eventually brought the ECB into the uncharted waters of unconventional policies. That the ECB could legally perform all of these tasks bears witness to the flexibility of the TFEU and its Statute, but its tools and operating procedures were stretched to their limit. In the end, the place of the ECB amongst EU policy-making institutions has been greatly enhanced, but has entailed repeated intrusions into the broader domain of economic policies – not least because of its market intervention policies – whose consequences have yet to be ascertained.

The Fate of Greece in a ‘Genuine Economic and Monetary Union’: Lessons from a small island state. CEPS Hi-Level Brief, 19 June 2015 Friday, 19 June 2015

As the Greek debt drama reaches another supposedly decision point, Daniel Gros urges creditors (and indeed all policy-makers) to think about the long term and poses one key question in this CEPS High-Level Brief: What can be gained by keeping Greece inside the euro area at “whatever it takes”? As he points out, the US, with its unified politics and its federal fiscal transfer system, is often taken as a model for the Eurozone, and it is thus instructive to consider the longer-term performance of an area of the US which has for years been kept afloat by massive transfers, and which is now experiencing a public debt crisis. The entity in question is Puerto Rico, which is an integral part of the US in all relevant economic dimensions (currency, economic policy, etc.). The dismal fiscal and economic performance of Puerto Rico carries two lessons: 1) Keeping Greece in the eurozone by increasing implicit subsidies in the form of debt forgiveness might create a low-growth equilibrium with increasing aid dependency. 2) It is wrong to assume that, further integration, including a fiscal and political union, would be sufficient to foster convergence, and prevent further problems of the type the EU is experiencing with Greece.

The Monetary Policy of the European Central Bank (2002-2015). Bruges European Economic Policy Briefings (BEEP) 35/2015.

This paper examines the policies pursued by the European Central Bank (ECB) since the inception of the euro. The ECB was originally set up to pursue price stability, with an eye also to economic growth and financial stability as subsidiary goals, once the primary goal was secured. The application of a single monetary policy to a diverse economic area has entailed a pronounced pro-cyclicality in its real economic effects on the eurozone periphery. Later, monetary policy became the main policy instrument to tackle financial instability elicited by the failure of Lehman Brothers and the sovereign debt crisis in the eurozone. In the process, the ECB emerged as the lender of last resort in the sovereign debt markets of participating countries. Persistent economic depression and deflation eventually brought the ECB into the uncharted waters of unconventional policies. That the ECB could legally perform all of these tasks bears witness to the flexibility of the TFEU and its Statute, but its tools and operating procedures were stretched to their limit. In the end, the place of the ECB amongst EU policy-making institutions has been greatly enhanced, but has entailed repeated intrusions into the broader domain of economic policies – not least because of its market intervention policies – whose consequences have yet to be ascertained.

The Drivers of Current Account Surplus in Germany and the Politics of Rebalancing in the Eurozone. EU Centre, Singapore Working Paper No. 24, April 2015

Current account deficits have caught the public’s attention as they have contributed to the European debt crisis. However, surpluses also constitute an issue as a deficit in any country must be financed through a surplus in another country. In 2013, Germany, now the world’s largest surplus economy, registered a record high US$273 billion surplus. This paper looks at what accounts for Germany’s surplus, revealing that the major driving factors include strong global demand for quality German exports, domestic wage restraint, an undervalued single currency, high domestic savings rate and interest rate convergence in the euro area. This paper echoes the US Treasury’s view that a persistent German surplus makes it harder for the eurozone as a whole and the southern peripheral economies in particular to recover from the current financial crisis by imposing a Europe-wide “deflationary bias” through pushing up the exchange rate of the euro, exporting feeble German inflation and projecting its ultra-tight macroeconomic policies onto crisis economies. This paper contends that Germany’s trade surplus is likely to endure as Germany and other eurozone countries uphold diverging views on the nature of the surplus engage in a blame-game amidst a sluggish rebalancing process. Prizing the surplus as a reflection of hard work and economic competitiveness, German authorities urge their southern eurozone colleagues to undertake bold structural reforms to correct the imbalance, while the hand-tied governments in crisis-stricken economies call on Germany to do its “homework” by boosting German demands for European goods and services.

Firmer foundations for a stronger European Banking Union. Bruegel Working Paper 2015/13, November 2015

The move to European Banking Union involving the supervision and resolution of banks at euro-area level was stimulated by the sovereign debt crisis in the euro area in 2012. However, the long-term objective of Banking Union is dealing with intensified cross-border banking.The share of the assets of national banking systems that come from other EU countries was rising before the financial and economic crisis of 2007, but went into decline thereafter in the context of a general retrenchment of international banking. Most recent data, however, suggests the decline has been halted. About 14 percent of the assets of banks in Banking Union come from other EU countries, while about a quarter of the assets of the top 25 banks in the Banking Union are held in other EU countries.While a crisis-prevention framework for the euro area has largely been completed, the crisis-management framework remains incomplete, potentially creating instability. There is no governance mechanism to resolve disputes between different levels of crisis-management agencies, and incentives to promote optimum oversight are lacking. Most importantly, risk-sharing mechanisms do not adequately address the sovereign-bank loop, with a lack of clarity about the divide between bail-in and bail-out.To complete Banking Union, the lender-of-last-resort and deposit insurance functions should move to the euro-area level, breaking the sovereign-bank loop. A fully-fledged single deposit insurance (and resolution) fund should be favoured over a reinsurance scheme for reasons of cost and simplicity.

A partial success of trade cooperation within the ‘16+1’ formula: the case of food exports to China. OSW COMMENTARY #189, 2015-10-29

When in 2012 China approached the countries of Central and Eastern Europe (CEE) with a proposal of cooperation in the ‘16+1’ formula, it declared it was willing to meet the needs of CEE countries. Beijing had been aware of the political importance of the problem of trade deficit (which has been ongoing for years) and launched cooperation with the governments of 16 CEE countries to boost imports from these states. The years 2011–2014 brought an improvement in the balance of trade between China and: Hungary, Latvia, the Czech Republic, Romania, Bulgaria and Croatia. The remaining ten CEE countries recorded an increase in their trade deficits. Changes in CEE countries’ balance of trade with China resulted only slightly from political actions. Instead, they were due to the macroeconomic situation and to a deterioration of the debt crisis in the EU which, for example, caused a decline in the import of Chinese goods in some of these countries. Multilateral trade cooperation was successfully developed in the entire region only in the agricultural and food production sector – the area of greatest interest to China. The pace of bilateral cooperation with specific countries varied, with the fastest being Poland, Latvia, Romania, Hungary and Bulgaria. Actions by governments of CEE countries resulted in Chinese market opening up to hundreds of local companies which, in turn, translated into an increase in the volume of foodstuffs sold by ‘the 16’ to China from US$ 137 million in 2011 to US$ 400 million in 2014. The success achieved in the agricultural and food production sector has demonstrated the effectiveness of trade cooperation in the ‘16+1’ formula. It is, however, insufficient to generate a significant improvement of the trade balance. At present, the sector’s share in the total volume of goods sold to China by CEE states is a mere 3.7%, and any reduction of the trade deficit would require long-term and more comprehensive solutions still to be implemented by the governments of individual CEE states.

Greece is solvent but illiquid. What should the ECB do? CEPS Commentary, 15 June 2015

There is one feature of the sovereign debt crisis in Greece that is widely misunderstood, namely the effective debt burden of the country’s government. Since the start of the crisis, its sovereign debt has been subjected to several restructuring efforts

La communication hors du commun : aporétique de la communauté inachevée

En prenant pour appui initial le caractère équivoque de la communication, cette dissertation interroge les manières par lesquelles la vie en commun prend aussi effet comme œuvre de mort. S’inspirant du renouvellement de la recherche sur le thème de la communauté, l’interrogation se déploie en trois mouvements principaux. Chacun de ces mouvements ouvre et négocie trois grandes impasses : épistémologique, politique et éthique. La recherche propose de s’y frayer un chemin en s’appuyant principalement sur les travaux de Jean-Luc Nancy, Giorgio Agamben et Roberto Esposito. Le premier mouvement ouvre au voilement de l’idée de communication. L’idée de communication est voilée par une idéologie qui hérite elle-même d’une certaine conception humaniste de la communauté. Un examen de l’essai de Pic de la Mirandole Sur la dignité de l’homme permet d’exposer les valeurs associées à cette tradition qui recouvrent le caractère ambivalent de la communication. Ce premier mouvement mène au seuil de la situation politique contemporaine, marquée notamment par la nécessité de penser « notre » condition après la crise des valeurs humanistes. Le deuxième mouvement s’applique à l’examen de trois événements politiques contemporains. Chacun donne à comprendre comment s’exprime le péril associé à ce voilement : la fusillade au Collège Dawson de Montréal en 2006, un incident impliquant l’usage de gaz lacrymogènes lors de manifestations menées en 2013 à la Place Taksim à Istanbul, en Turquie, et une analyse de la crise de la dette publique grecque. L’aporie qui articule communication et incommunicabilité y est examinée à partir des thèmes de l’incommensurabilité des modes de vie en commun, de la biopolitique et du fascisme. Le fait que le péril qui menace de « nous » partager soit encore, malgré tout, ce que « nous » avons en partage invite à avancer là où aucune voie ne semble s’ouvrir. Le troisième mouvement présente les manières par lesquelles l’aporie de la communication peut être saisie en montrant qu’il est possible de penser par delà l’opposition de la communication et de la non-communication. Ce problème est abordé à l’horizon de la tradition philosophique concernant la question de l’être. Le saisissement du commun comme d’un propre — l’appropriation de l’inappropriable — ouvre à une conception de la communication « hors du commun ». Ces trois mouvements ne portent pas jusqu’à une conclusion. Ils ouvrent plutôt sur une autre conception de la communication. Celle-ci expose la possibilité sans cesse reconduite de l’événement fragile et intime dont « nous » sommes le nom.