Granger causality and systemic risk

Building on the concept of Granger causality in risk in Hong et al. (2009), and focusing on an international sample of large-capitalization banks, we test for predictability in comovements in the left tails of returns of individual banks and the global system. The main results show that large individual shocks (defined as balance-sheet contractions exceeding the 1% VaR level) are a strong predictor of subsequent shocks in the global system. This evidence is particularly strong for US banks with large desks of proprietary trading. Similarly, we document strong evidence of financial vulnerabilities (exposures) to systemic shocks in US subprime creditors.

Macroeconomic and Financial Crisis Management in the Southern and Eastern Mediterranean: Diagnosis and Prospects. CEPS Paperbacks. December 2013

The global financial crisis, which started in the summer of 2007 and deepened in the aftermath of the Lehman failure in September 2008, has led to a virtual collapse in economic activity and increased financial volatility worldwide. For the developing countries, the main channel of transmission has been a drop in external transactions, such as trade, financial and capital flows, and remittances. The emerging economies in the southern and eastern Mediterranean have also faced declining economic activity, although there seems to be considerable variation in the relative magnitude and timing. Most of these economies have shown a delayed but more lasting response to the crisis, driven mostly by their close trade and investment ties with the EU and the Gulf Cooperation Council (GCC) countries. This book explores the fiscal, monetary and financial effects of the crisis in the region and provides an in-depth analysis of the fiscal, monetary and banking policies in the post-crisis era, the viability of their exit strategies and the future of reforms in the region. These analyses not only provide a comprehensive comparison between the countries but also provide a solid basis for assessing future economic and financial developments and reforms in the region.

European Central Bank accountability: how the monetary dialogue could be improved. Bruegel Policy Contribution 2014/04, March 2014

According to the European Union Treaties, the European Central Bank (ECB) is accountable to the European Parliament. In practice, this accountability takes mainly the form of a quarterly Monetary Dialogue between the president of the ECB and the European Parliament Economic and Monetary Affairs committee. We assess the impact of the Monetary Dialogue. We describe the ECB’s accountability practices, compare them to those of other major central banks and provide an assessment of the dialogue in the last five years. The Monetary Dialogue could be improved and we make recommendations on this. We also consider what role the Monetary Dialogue could play in the current context of the ECB’s evolving role. We discuss in particular forward guidance and quantitative easing. We review the main features and the way in which those policies have been implemented by other central banks. We then suggest the appropriate role for the Monetary Dialogue in relation to each of those policies. We conclude with some observations on the function of the Monetary Dialogue after the establishment of a banking union in Europe.

Historic turning point or just another chapter? The results of a foreign-policy summit. EPC Post-Summit Analysis, 24 March 2014

The March 2014 European Council could enter the history books as a turning point, not only in the EU’s relations with Russia but also in its role as a foreign policy actor. Events in Ukraine inevitably dominated the Summit, with EU leaders adopting a balanced approach aimed at achieving three key objectives – de-escalation, containment/deterrence and cooperation – based on political and economic support for Ukraine, increased but limited pressure on Russia, and moves to strengthen ties with other EU neighbours. The Summit also discussed a range of economic and environmental policy issues, with the situation in Ukraine casting a long shadow over the discussion on energy policy, but failed to reach agreement on the EU’s climate goals to 2030, or to put more flesh on the bones of calls for a European “industrial renaissance”. However, two other developments were particularly significant: the creation of the second pillar of the future banking union, establishing a single regime for winding down failing banks; and changes to the savings tax directive, bringing years of negotiation to an end.

Eurosystem collateral policy and framework: Was it unduly changed? Bruegel Policy Contribution 2014/14, 17 November 2014

All Eurosystem credit operations, including the important open market operations, need to be based on adequate collateral. Liquidity is provided to banks against collateral at market prices subject to a haircut. The Eurosystem adapted its collateral framework during the crisis to accept lower-rated assets as collateral. Higher haircuts are applied to insure against liquidity risk as well as the greater volatility of prices of lower-rated assets. The adaptation of the collateral framework was necessary to provide sufficient liquidity to banks in the euro area periphery in particular. In crisis countries, special emergency liquidity assistance was provided. More than 80 percent of the European Central Bank’s liquidity (Main Refinancing Operations and Long Term Refinancing Operations) is provided to banks in five countries (Greece, Ireland, Italy, Portugal and Spain). The changes in the collateral framework were necessary for the ECB to fulfil its treaty-based mandate of providing liquidity to solvent banks and safeguarding financial stability. The ECB did not take on board excessive risks.

Strengthening the euro area. CHALLENGE EUROPE Issue 22. Challenges and new beginnings: Priorities for the EU's new leadership, September 2014

Since 2007, a series of acute crises have threatened the very existence of the euro area. The financial crisis which spilled into the currency union in 2007 was followed by an unexpectedly strong downturn of the real economy. As of 2010, the euro area was confronted with a severe sovereign debt and banking crisis. Despite these troublesome developments, the euro area has proven to have a considerable degree of resilience. In each phase, governance weaknesses were revealed – and national governments together with the EU institutions have designed an impressive series of policy responses in crisis management and institutional innovation. The euro area today is completed by a banking union with a Single Supervisory and a Single Resolution Mechanism. National budgetary and economic policies are more closely overseen and coordinated. With the European Stability Mechanism, the euro area now has a permanent tool in place to manage sovereign liquidity crises and instabilities in the banking sector. Most importantly, the euro area's only true federal institution, the European Central Bank (ECB), has become its most effective crisis manager: with the announcement of its Outright Monetary Transactions (OMT) programme, the ECB finally managed to calm the self fulfilling crisis in 2012. Meanwhile, the announcement of credit easing and quasi-quantitative easing in September 2014 is a move towards reducing financial fragmentation and countering deflation. The euro area in 2014 is hence a lot different from the one in 2007. And yet, further challenges need to be overcome. Prevailing stagnation, fragmentation and problems of legitimacy require a rethink of policies and further governance reform.

The Berlin Republic and the real end of the post-war era. OSW Commentary No. 67, 2011-12-07

In the post-war era, Germany has undergone a deep change almost like clockwork every two decades. In 1949, the foundations were laid for the establishment of the two German states: the Federal Republic of Germany and the German Democratic Republic; 1968–1969 was the time of the student revolt as a harbinger of the democratisation and liberalisation of society; and in 1989–1990, the process of unification took place, with all its consequences. Two decades later, another deep revision of the values is happening, as a consequence of which Germany is bidding a final farewell to the post-war epoch and its inherent certainties: its advancing society, the homogeneous national state and the faith in Europe as a solution to the ‘German question.’ This revision will not be revolutionary. However, as with the previous turning points, Germany is becoming a different state and a different society, which Europe will have to build its relations with anew.

Debating the European debt crisis: Government leadership, party ideology and supranational integration as focal points of parliamentary debates in Austria, Germany and the United Kingdom. ACES Cases No. 2012.3

Parliamentary debates about the resolution of the EU debt crisis seem to provide a good example for the frequently assumed “politicizationˮ of European governance. Against this background, the paper argues that in order to make sense of this assumption, a clearer differentiation of three thematic focal points of controversies – with regard to the assessment of government leadership, concerning the debate between competing party ideologies within the left/right dimension, and with regard to the assessment of supranational integration – is needed. Applying this threefold distinction, the paper uses a theory of differential Europeanization to explain differences in the thematic structure of debates in the Austrian Nationalrat, the British House of Commons, and the German Bundestag. Empirically, the paper is based on data gained from the computer-based coding of plenary debates about the resolution of the European debt crisis between 2010 and 2011.

The Relevance of International Spillovers and Asymmetric Effects in the Taylor Rule. CEPS Working Document No. 403, February 2015

Deviations of policy interest rates from the levels implied by the Taylor rule have been persistent before the financial crisis and increased especially after the turn of the century. Compared to the Taylor benchmark, policy rates were often too low. This paper provides evidence that both international spillovers, for instance international dependencies in the interest rate-setting of central banks, and nonlinear reaction patterns can offer a more realistic specification of the Taylor rule in the main industrial countries. The inclusion of international spillovers and, even more, nonlinear dynamics improves the explanatory power of standard Taylor reaction functions. Deviations from Taylor rates tend to be smaller and their negative trend can be eliminated.

An Exercise in Legal Honesty: Re-writing the Court of Justice and the Bundesverfassungsgericht. IHS Political Science Series No. 136, February 2014

At a time of crisis – a true state of emergency – both the Court of Justice of the European Union and the German Federal Constitutional Court have failed the rule of law in Europe. Worse still, in their evaluation of the ersatz crisis law, which has been developed in response to financial and sovereign debt crises, both courts have undermined constitutionality throughout Europe. Each jurisdiction has been implicated within the techocratisation of democratic process. Each Court has contributed to an incremental process of the undermining of the political subjectivity of European Citizens. The results are depressing for lawyers who are still attached to notions of constitutionality. Yet, we must also ask whether the Courts could have acted otherwise. Given the original flaws in the construction of Economic and Monetary Union, as well as the politically pre-emptive constraints imposed by global financial markets, each Court might thus be argued to have been forced to suspend immediate legality in a longer term effort to secure the character of the legal jurisdiction as a whole. Crisis can and does defeat the law. Nevertheless, what continues to disturb is the failure of law in Europe to open up any perspective for a return to normal constitutionality post crisis, as well as its apparent inability to give proper and honest consideration to the hardship now being experienced by millions of Europeans within crisis. This contribution accordingly seeks to reimagine each Judgment in a language of legal honesty. Above all, this contribution seeks to suggest a new form of post-national constitutional language; a language which takes as its primary function, proper protection of democratic process against the ever encroaching powers of a post-national executive power. This contribution forms a part of an on-going effort to identify a new basis for the legitimacy of European Law, conducted jointly and severally with Christian Joerges, University of Bremen and Hertie School of Government, Berlin. Differences do remain in our theoretical positions; hence this individual essay. Nevertheless, the congruence between pluralist and conflict of law approaches to the topic are also readily apparent. See, for example, Everson & Joerges (2013).

The Impact of Language Opacity and Proficiency on Reading Strategies in Bilinguals: An Eye Movement Study

Reading strategies vary across languages according to orthographic depth - the complexity of the grapheme in relation to phoneme conversion rules - notably at the level of eye movement patterns. We recently demonstrated that a group of early bilinguals, who learned both languages equally under the age of seven, presented a first fixation location (FFL) closer to the beginning of words when reading in German as compared with French. Since German is known to be orthographically more transparent than French, this suggested that different strategies were being engaged depending on the orthographic depth of the used language. Opaque languages induce a global reading strategy, and transparent languages force a local/serial strategy. Thus, pseudo-words were processed using a local strategy in both languages, suggesting that the link between word forms and their lexical representation may also play a role in selecting a specific strategy. In order to test whether corresponding effects appear in late bilinguals with low proficiency in their second language (L2), we present a new study in which we recorded eye movements while two groups of late German-French and French-German bilinguals read aloud isolated French and German words and pseudo-words. Since, a transparent reading strategy is local and serial, with a high number of fixations per stimuli, and the level of the bilingual participants' L2 is low, the impact of language opacity should be observed in L1. We therefore predicted a global reading strategy if the bilinguals' L1 was French (FFL close to the middle of the stimuli with fewer fixations per stimuli) and a local and serial reading strategy if it was German. Thus, the L2 of each group, as well as pseudo-words, should also require a local and serial reading strategy. Our results confirmed these hypotheses, suggesting that global word processing is only achieved by bilinguals with an opaque L1 when reading in an opaque language; the low level in the L2 gives way to a local and serial reading strategy. These findings stress the fact that reading behavior is influenced not only by the linguistic mode but also by top-down factors, such as readers' proficiency.

Elemental and stable isotopic composition of fine fraction samples of ODP Site 115-709 (Table 1)

Stable isotopic and minor element compositions were measured on the fine fraction of pelagic carbonate sediments from Ocean Drilling Program Site 709 in the central Indian Ocean. This section ranges in age from 47 Ma to the present. The observed compositional variations are the result of either paleoceanographic changes (past oceanic chemical or temperature variations) or diagenetic changes. The CaCO3 record is little affected by diagenesis. From previous work, carbonate content is known to be determined by the interplay of biological productivity, water column dissolution, and dilution. The carbon isotopic record is generally similar to previously published curves. A good correlation was observed between sea-level high stands and high 13C/12C ratios. This supports Shackleton's hypothesis that as the proportion of organic carbon buried in marine sediments becomes larger, oceanic-dissolved inorganic carbon becomes isotopically heavier. This proportion appears to be higher when sea level is higher and organic carbon is buried in more extensive shallow-shelf sediments. The strontium content and oxygen isotopic composition of carbonate sediments are much more affected by burial diagenesis. Low strontium concentrations are invariably associated with high values of d18O, probably indicating zones of greater carbonate recrystallization. Nevertheless, there is an inverse correlation between strontium concentration and sea level that is thought to be a result of high-strontium aragonitic sedimentation on shallow banks and shelves during high stands. Iron and manganese concentrations and, to a lesser extent, magnesium and strontium concentrations and carbon isotopic ratios are affected by early diagenetic reactions. These reactions are best observed in a slumped interval of sediments that occurs between 13.0 and 17.5 Ma. As a result of microbial reduction of manganese and iron oxides and dissolved sulfate, it is hypothesized that small amounts of mixed-metal carbonate cements are precipitated. These have low carbon isotopic ratios and high concentrations of metals.

Foraminifera and stable isotope record of ODP Leg 105 sites

Faunal and stable isotopic data in Sites 646 and 647 provide a ~0.9-Ma paleoclimatic and paleoceanographic record for the Labrador Sea, that is supported by a floral record for the past ~0.3 Ma. At both sites, most glacial stages generally are dominated by polar fauna and flora with low species diversity. Although minor occurrences of subpolar species also were observed in lowermost parts of several glacial stages in Site 646, the faunal classification of Ruddiman and Mclntyre (1976) suggested the presence of polar ecological water masses in the area during most of the glacial periods. In several glacial stages at Site 647, both the faunal and floral data indicate that early periods were marked by subpolar and transitional ecological water masses. The interglacials are characterized by a polar fauna at Site 646 and by polar and transitional faunas and floras at Site 647. However, several interglacial stages in Site 646 include a subpolar flora, in contrast to a planktonic foraminifer fauna similar to that found in the glacial stages. The occurrence of subpolar water masses in several glacial isotopic stages indicates significant northward advection of warmer waters into the Labrador Sea during the early glacial periods, which provided a corridor of oceanic warmth extending from mid- to high latitudes and contributed an additional source of moisture for continental ice-sheet growth. Similar conditions also were documented in the northwest Labrador Sea, Grand Banks, and the North Atlantic.

Reports on the violation of the rights of nations and of the laws ans customs of war in Belgium.

[Vol. I] includes a preface by J. van den Heuvel, minister of state, reports 1-12, and extracts from the pastoral letter of Cardinal Mercier, archbishop of Malines; vol. II includes reports 13-22, with facsimiles of German soldiers' diaries, correspondence between Cardinal Mercier and the German authorities, the protest of Mgr. Heylen, bishop of Namur, etc., etc., appended.