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Using a unique proprietary dataset from a large European commercial bank containing granular loan-level information on credit lines to mid-corporate firms, we investigate the bank's decisions to allow firms to retain existing credit at a time of acute financial instability. Our results highlight the importance of bank-firm relationships during crisis times. Existing borrowers who actively used their credit lines were not rationed, unless they posed an increased credit risk. We do not find evidence of evergreening practices. [ABSTRACT FROM AUTHOR]

This study assesses the effects of the European Central Bank's (ECB) unconventional monetary policy (UMP) on the prices of selected European stock market indices during the European sovereign debt (2010–2012) and the COVID-19 pandemic (2020–2022) crises interventions. This research employs the instrumental variables (IV) two-stage least squares (2SLS) model approach to evaluate the effects of changes in the size of the ECB's balance sheet on the pricing of key equity market indices in Europe. The results of this study suggest that the ECB's asset value expansion had the opposite statistically significant effects on the European stock market indices' prices between the interventions. That is, an increase in the ECB's balance sheet size was associated with a decrease in the prices of the indices during the sovereign debt crisis and with a rise during the COVID-19 pandemic. This research pinpoints the price sensitivity of each of the European equity indices to the ECB's UMP and determines the different outcomes of the ECB's quantitative easing policy between the interventions. [ABSTRACT FROM AUTHOR]

The institutional developments in Economic and Monetary Union (EMU) during the sovereign debt crisis were mostly studied with reference to intergovernmentalist theories. However, they can hardly explain the dominant role of the Eurogroup and Eurogroup working group (EWG) compared to the EU-27 formats in the Council, the ECOFIN and the Economic and Financial Committee. This article seeks to address this puzzle. Based on sociological-institutionalist theories, I argue that the distinction between euro area member states (EAMS) and non-EAMS structured how member state representatives organised EMU governance processes during the sovereign debt crisis. The reinforcement of the Eurogroup and EWG is interpreted as an explicit manifestation of this institutionalisation of differentiated integration (DI) in EMU. The empirical findings suggest that the two informal formats were transformed into viable euro area bodies providing the EAMS with the political authority, normative environment and administrative resources to design and implement policies independently. In this reinforced shape, the Eurogroup and EWG enabled a distinction between EU and euro area matters and provided EAMS with suitable instruments to manage their issues. The institutionalisation of DI has long-term implications for EMU reform processes and governance practices. [ABSTRACT FROM AUTHOR]

Reflecting on twenty years of Cyprus's EU membership, this paper aims to provide an account of the rationale for its accession to the EU and the euro area, and an assessment of their benefits. The argument made in the paper is that although it was security rather than economic considerations that accounted for Cyprus's EU accession, the latter also came with certain financial benefits. Moreover, while Cyprus's accession to the single currency was motivated by its desire to be part of the hard core of the European unification project, its euro area participation was to stand Cyprus in good stead in its hour of need, during the Cypriot sovereign debt crisis of 2012-2013. The paper also explores whether the unprecedented accession of a divided country to the EU may provide a source of inspiration for future enlargements, where sui generis circumstances prevail. [ABSTRACT FROM AUTHOR]

This study examines the effects of joining the European Monetary Union (EMU) using propensity score matching to address self‐selection bias. Findings indicate that EMU membership leads to reduced volatility in inflation, output growth, and bond yields. However, it also reveals fiscal deterioration in member states during the pre‐financial crisis period, even excluding Greece, Ireland, Portugal, and Spain. These countries experienced favorable bond market conditions pre‐crisis. The study underscores varying EMU effectiveness across different periods and countries, emphasizing the importance for policymakers to consider these variations when adopting EMU strategies. [ABSTRACT FROM AUTHOR]

This article provides issues related to sovereign debt crisis and its widespread long-term impacts on debtor Nations. These crises are very complicated that they not only can ruin economies but also severely effect governance, political stability and social harmony of a country. The objectives of the article are to analyze these complex and multi-layered impacts and provides strategic recommendations. This article employed interdisciplinary approach that integrates economy, management and political science. This research incorporates empirical data, theoretical insights and case studies. The methodology of this article involves a comprehensive and precise analysis of historical and contemporary case study to identify the pattern and sequence of sovereign debt crisis. Results of this article indicates that debt crisis increase economic decline, destabilize political institution and erode public trust in governance. It also includes recommendations for policy makers those are implementing robust debt management framework, enhance governance structures, fostering economic diversifications and promoting social cohesion. This article suggests valuable insights for academic and policy makers to overcome the adverse effect of sovereign debt crisis and enhance long term stability in country. [ABSTRACT FROM AUTHOR]

This paper measures the output costs of sovereign risk by combining a sovereign debt model with firm- and bank-level data. An increase in sovereign risk lowers the price of government debt and has an adverse impact on banks' balance sheets, disrupting their ability to finance firms. The resulting fall in credit supply impacts firms directly, as they need to borrow at higher interest rates, and indirectly through general equilibrium effects on the price of inputs and other goods. Importantly, firms are not equally affected by these developments: those that have greater financing needs and that borrow from banks that hold more government debt are mostly affected by the change in borrowing rates, while firms that do not borrow are only impacted indirectly. We show that these direct and indirect effects can be recovered using a firm-level regression, which we estimate using Italian data. We calibrate our model to match the measured firm-level elasticities and find that heightened sovereign risk was responsible for one-third of the observed output decline during the Italian debt crisis. [ABSTRACT FROM AUTHOR]

After the sovereign debt crisis, scholars concluded that euro area member states (EAMS) and non-EAMS embarked on diverging paths of integration. Yet, their united response countering the economic consequences of the COVID-19 crisis contradicts the path-dependency argument. This article takes an ideational approach. It demonstrates that the different crisis outcomes regarding differentiated integration (DI) in Economic and Monetary Union (EMU) coincide with variations of how DI influenced elite crisis perceptions as an idea. While policymakers perceived the sovereign debt crisis as a currency area crisis with threats and spillovers applying to EAMS, they interpreted the COVID-19 crisis as a health emergency threatening all EU member states. These differences in elite crisis perceptions facilitated different outcomes regarding DI despite unchanged economic and fiscal circumstances among EAMS and non-EAMS. The findings challenge deterministic assumptions on the self-reinforcing nature of DI in EMU and establish DI as an idea structuring elite perceptions. [ABSTRACT FROM AUTHOR]

How is the probability of a sovereign debt crisis affected by fiscal devolution? Using annual cross-country panel data from 82 advanced and developing countries, the association between fiscal decentralization and the sovereign debt crisis is investigated. We adopt an instrumental variable probit model to address potential endogeneity. The research distinguishes between tax policies and spending policies. The results reveal that local tax autonomy reduces the probability of a sovereign debt crisis. In contrast, expenditure devolution is found to increase the probability of a sovereign debt crisis. These favorable and unfavorable effects of fiscal devolution are more evident in the case of decentralization to local governments than in the case of decentralization to subnational governments. In terms of relative magnitudes, our discrete choice analysis demonstrates that the undesirable effects of expenditure decentralization are greater than the desirable effects of tax revenue decentralization. Therefore, countries should be cautious about the risks associated with fiscal devolution, particularly the contrasting impact of tax revenue and spending decentralization on the likelihood that sovereign debt crises occur. [ABSTRACT FROM AUTHOR]

Reflections on the sovereign debt crisis often portray the Eurogroup and the Eurogroup Working Group (EWG) as inaccessible for euro area outsiders. Yet, common wisdom suggests that Council representatives can circumvent exclusion due to differentiated integration (DI) by complying with insider norms. This article studies whether and how compliance with procedural norms socialised amongst representatives from euro area member states (EAMS) determined patterns of non‐EAMS involvement in Eurogroup and EWG interaction during the sovereign debt crisis. The argument highlights the role of deliberation and consensus‐building norms, suggesting that they gained particular robustness amongst EAMS representatives. Those non‐EAMS representatives who consistently complied with these insider norms could secure involvement in intergovernmental debates amongst EAMS. Exclusion was mostly relevant to norm violators. This article sheds light on the institutional consequences of DI in Economic and Monetary Union, highlighting its structural effects on governance and decision‐making processes during the sovereign debt crisis. [ABSTRACT FROM AUTHOR]

This paper introduces a new decomposition of euro area headline inflation into core, cyclical, and residual components. Our new core inflation measure, the structural core inflation rate, is the expected headline inflation, conditional to medium to long-term demand and supply-side developments. It shows smoothness and trending properties, economic content, and forecasting ability for headline inflation and other available core inflation measures routinely used at the ECB for internal or external communication. Hence, it carries additional helpful information for policy-making decisions. Concerning recent developments, all the inflation components contributed to its post-pandemic upsurge. Since mid-2021, core inflation has been downward, landing at about 3% in 2022. Cyclical and residual inflation-associated with idiosyncratic supply chains, energy markets, and geopolitical tensions- are currently the major threats to price stability. While some cyclical stabilization is ongoing, a stagflation scenario cum weakening overall financial conditions might emerge. A pressing issue for ECB monetary policy will be to face -mostly supply-side- inflationary pressure without triggering a financial crisis.

This study explores fiscal consolidations' impact on non-performing loans (NPLs) in highly indebted countries (HICs) following the global financial crisis (GFC) and subsequent sovereign debt crisis. A dynamic panel data estimator was applied to obtain the unbiased estimator due to NPLs' time persistence. The findings reveal that fiscal consolidation measures increase NPLs since they limit the household and business loan-serving capacity. Extended analysis categorises fiscal consolidation episodes into (1) the fiscal consolidation weak form (FCWE) and (2) the fiscal consolidation strong form (FCSE). The extended analysis results reveal that the FCWE and FCSE improve NPLs by 1.55% and 31.10%, respectively. The weak-to-strong form transition of the fiscal consolidation analysis resulted in improving NPLs by 28.55 percentage points. NPL definition challenges, the potential influence of loan restructuring and regulatory restrictions, and implications for policymakers and financial institutions in managing NPLs in highly indebted economies were explored. Investigating the potentially different effects of both forms of fiscal consolidation (FCWE and FCSE) on NPLs in countries with different definitions of NPLs, including a comparison study between different definitions, was identified as an implication for future research. Finally, future studies should examine how restrictions on IFRS 9 may affect the FCWE and NPL as well as FCSE and NPL associations. [ABSTRACT FROM AUTHOR]

This essay critically analyses the European Union's (EU) approach to economic recovery during times of crisis, focusing on the 2008 financial crisis and the subsequent eurozone debt crisis. The EU's response included various measures such as bailouts, fiscal stimulus packages, and structural reforms. However, shortcomings in these responses are evident, including a lack of long-term planning and the exacerbation of negative effects by bailout announcements. Moreover, the essay examines structural issues within the EU, particularly regarding the European Central Bank's monetary policies and the lack of cohesive fiscal policies among member states. These structural deficiencies contributed to the severity of the crises. Despite lessons learned, including the need for stricter financial regulations and improved coordination among member states, challenges remain. The analysis suggests that while the EU has undergone reforms, its resilience to future crises remains uncertain. [ABSTRACT FROM AUTHOR]

Keywords: Leverage, small and medium capitalised firms, capital structure, sovereign debt crisis, stressed country, non-stressed country This study investigates the speed of adjustment of the capital structure of small and medium capitalised firms in Europe before and during the sovereign debt crisis period. The sample includes 306 firms from 10 European countries comprising 2,142 firm-year observations for the period 2006 to 2013. After controlling the influence of firm-level, industry-level, and macroeconomic factors on debt levels, we report that small and medium capitalised firms have adjusted their capital structure during the sovereign debt crisis period and the speed of adjustment was quicker in non-stressed countries compared to the firms in the stressed countries. Our findings also show that the quality of countries’ institutional factors has significantly influenced the speed of adjustment of leverage of small and medium capitalised firms during the crisis period. Our findings suggest that the firm-level determinants of leverage for small and medium capitalised firms in Europe are; size and asset tangibility. Furthermore, the industry-level determinant is industry median leverage and macroeconomic-level determinants are GDP growth rate and inflation rate. The policy implications of the findings indicate that improving the country’s institutional environment (such as governance, rule of law, and corruption) will ease small and medium capitalised firms’ financial difficulties, which in turn facilitate their economic performance and resilience.

The economic effects of the Covid-19 pandemic have placed a renewed strain on the economic governance of the European Union (EU). The European Central Bank (ECB) was a key player in the EU's response to the crisis induced by the pandemic. This paper adopts a theoretical approach focused on policy learning to explain how and why the ECB responded to the crisis in 2020–2021. By drawing on speeches, newspaper articles and interviews with policy-makers, the paper finds that the ECB was able to rely on earlier crisis experiences in the euro area in forming its response to the pandemic crisis. Although the sovereign debt crisis and the pandemic crisis had both similarities and differences from one another, the ECB was able to engage in inter-crisis and intra-crisis learning. Its learning concerned objectives, instruments as well as an awareness that timely and forceful response was crucial, so that the member states and other EU institutions had time to act. [ABSTRACT FROM AUTHOR]

This paper explores the impact of sovereign defaults on lending countries and evaluates government intervention policies in a dynamic infinite-horizon model. When banks in the lending country hold risky foreign bonds, the default risk in the foreign country has a spillover effect on the output volatility of the lending country. A macroprudential tax on the purchase of foreign bonds reduces the lending country's exposure to foreign sovereign risk and output volatility. Households gain in welfare as a result, but bankers lose because taxes lower banks' profitability. The effect on overall welfare is mixed, depending on which group dominates. It is beneficial ex post to implement bailout policies when the government redistributes resources from households to banks after default, but bailouts encourage banks to take on risk by holding more sovereign bonds ex ante, leading to greater output fluctuations in the lending country. [ABSTRACT FROM AUTHOR]

Although the sovereign debt is primarily a long-term accounting occurrence that can emerge in the public budget, its management refers to the economic sphere as much as to the political one. Moreover, as its structure and size depend on the decisions made in both domains in a certain context, space, and time circumstances matter in debating the problem. Thus, the study of the nineteen eighties MENA economies 'sovereign debt crises must consider also the contextual economic and political conditions and behaviours. Since these aspects represent usually subject matters for different disciplinary fields, it is difficult to take into consideration all of them without a multifaceted keynote. The concept of 'economic policy paradigm' can represent an analytical economic device that, alongside with the economic nature of the budget crisis, can also embed the players and the strategic interests acting in the negotiation process and in the application of the economic measures to cancel out the sovereign debt. The paper applies such analytical framework to show how, due to a change in the 'economic policy paradigm for the development,' the emergence of the public debt in nineteen seventies MENA economies became the 'sovereign debt crises. [ABSTRACT FROM AUTHOR]

This study investigates the relationship between board risk oversight practices at financial institutions in the EU and systemic risk during the sovereign debt crisis. More specifically, we examine whether European banks and insurance companies that had strong board-level risk oversight in place before the onset of the sovereign debt crisis fared better during the crisis. We construct a risk oversight index based on publicly available, hand-collected data, which captures the strength of the institutions' board-level risk governance practices. We find that financial institutions with stronger board risk oversight prior to the crisis were less vulnerable to the sovereign debt crisis, after controlling for other factors. The results are consistent and economically relevant for SRISK, probability of default, and Delta-CoVaR, three measures of systemic risk that are commonly used in the context of financial institutions. [ABSTRACT FROM AUTHOR]

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The reaction of European Union's (EU) policy makers to the Covid-19 shock was bold and timely; although they could not avoid a crisis whose dimensions made the 2007-2008 Global Financial Crisis pale by comparison, the governments' titanic effort managed, with the support of EU institutions, to mitigate its impact on incomes and employment. This came as a welcome change after the calamitous management of the sovereign debt crisis. But it is precisely the extraordinary dimension of the crisis that prompts the question of whether the activism of economic policy denoted a change in the mindset of EU governments and institutions, or simply was the only option available to policymakers to avoid the collapse of their economies. This paper tries to answer the question through an assessment of the debate on Eurozone reform, with a focus on the "New Kid in Town": fiscal policy. [ABSTRACT FROM AUTHOR]

Following the bursting of the real estate crisis of 2007 and the financial crisis of 2008, the European Union faced another difficult situation, namely the sovereign debt crisis, when the euro was put to the test. The sovereign debt crisis is a widely debated and analyzed topic both in Romania and in Europe. Given the effects it generates, amid rising government debt and the instability of the banking system, it is important to know its causes, in order to subsequently identify the most effective measures to improve the economic situation in each affected state. This paper seeks to discuss the concept of sovereign debt crisis by conducting an analysis of government debt sustainability and the budget deficit in the European Union, as well as a forecast of government debt sustainability in Romania, reflecting the measures implemented by the Central Bank EU. According to the Maastricht criteria, the nominal convergence indicators, including the budget deficit and government debt, must be below the alert level, so that they are in line with European Union requirements. The level of the consolidated budget deficit must be less than 3%, and in terms of government debt, it must be below 60% of GDP. The rationale for choosing this theme is that the existence of such a crisis at European level can significantly affect the economic context of each Member State of the European Union (EU), in terms of the interconnection of the global financial system. This interconnection refers to the idea that, when a state becomes involved in the claim of sovereign debt, it indisputably endangers part of the external private debt. This concept is also called in the literature and contagion effect. The relevance of this theme lies in the analysis of the evolution of the main indicators that led to the onset of the sovereign debt crisis, as well as in the identification of its causes, in order to prevent enlargement.

Aim/purpose – This paper investigates the accuracy of leading indicators in the case of the 2001 sovereign default crisis and the 2018 currency turmoil in Argentina.

Abstract The recent financial and sovereign debt crises emphasized the interdependence between bank and sovereign default risk and showed that major shocks may lead to a self-reinforcing negative spiral. In this paper, we analyse the pattern of interaction between bank and sovereign default risk by endogenously estimating the timing of structural breaks. The endogenous approach avoids the problem of choosing the number and the location of important turning points associated with the exogenous selection of break dates, commonly applied in the literature. In addition, it provides additional insight to which (if any) of the many exogenously proposed breaks are of particular importance to one specific economy, which can help policy makers to structure their actions accordingly. Using Spain during the 2008–2012 period as an illustrative example, we find supporting evidence for the three distinctive phases, marked by the breaks in the early-January and mid-May 2010. The three phases are characterized with an evident change in the bank–sovereign interaction, and we detect a bi-directional relationship only during the interim phase, i.e. at the very peak of the European sovereign debt crisis. We show that endogenously identified turning points coincide with important public events that affect investors’ perception about the government’s capacity and willingness to repay debt and support distressed banks. Finally, we provide evidence that structural dependence in the system extends to the interaction between bank and sovereign default risk volatility.

This paper evaluates the performance of seventeen Greek equity mutual funds before and after the sovereign debt crisis. By being based on the Capital Asset Pricing Model (CAPM), the selectivity and market timing skills of these funds are under scrutiny. This takes place by assigning a linear form to the Beta coefficient and transforming the traditional CAPM equation into a second order polynomial. Results provide evidence of an improvement in selectivity and market timing skills for the majority of these emerging funds after the outburst of the debt crisis and the adoption of measures by Troika. Thereby, the potential of excess profit-making possibilities for capable fund managers in the Greek fund market is enhanced during non-conventional periods in comparison to normal times, even though the Efficient Markets Hypothesis (EMH) still holds.

The multifaceted crisis brought about by the Covid-19 pandemic has led to the adoption of the Next Generation EU temporary recovery instrument, which encompassed several major steps towards strengthening of the EU institutional framework, including issuance of bonds by the Commission worth up to 850 billion Euros and conditionality for the disbursement of recovery funds based on the respect of the rule of law. Similarly, the global financial and economic crisis provoked the reform of the Stability and Growth Pact, while the European sovereign debt crisis that ensued prompted the EU Member States to undertake major reforms in the form of the banking, fiscal and capital markets unions. Considering these causal relations, a claim may be made that crises form an indispensable basis of every transformational step along the pathway of EU institutional development. If such claim were true, a question arises whether it means that the path "towards an ever-closer Union" is taken out of necessity or is it simply a consequence of the democratic deficit of the EU, so that only in times of crises political decision-making within Member States becomes susceptible to further EU integration. The analysis shows that it is the intertwining of pragmatic interests on one hand and values and identity aspects on the other that form the basis of EU integration. Such understanding leads to the conclusion that the fact that the EU in recent decades moved forward only in crises is indeed caused by the democratic deficit in the EU. [ABSTRACT FROM AUTHOR]

Market anomalies are one of the most intriguing and fascinating phenomena observed in financial markets. This paper examines the incidence of price clustering in US and European bank stocks during the Global Financial Crisis. The results reveal a significant level of price clustering in European and US banks’ samples, which is difficult to reconcile with the Efficient Market hypothesis. The Attraction hypothesis and the Price Resolution/Negotiation hypothesis seem to be the best explanations for the clustering effect. However, the results also suggest that the uncertainty associated with the crisis did not have a significant impact in the clustering levels, which is at odds with the recently proposed Panic Trading hypothesis. Surprisingly, we observe a tendency to have less price clustering during the period of crisis and banks located in countries mostly affected by the European sovereign debt crisis exhibit lower levels of price clustering. These results are consistent with the idea that investors tend to be more analytical in their appraisals in periods of negative sentiment.

This paper, by presenting and analysing some recent phenomena – like Brexit, the income (or more generally: prosperity) gap both between Western and Eastern, and Northern and Southern European member states, tensions within the Euro system, or even the resolution of the Greek crisis – would like to point to a certain direction which is worth to be considered in relation to the future of the European Union. In contrast to the standard narrative, it argues that instead of ever more integration – i.e. consisting of forcing more and more dogmatic economic policy under German domination –, Europe would benefit from a looser, multi-tier integration, based on mutually advantageous cooperation of nations. Such a solution would not exclude the preservation of a hard core of countries with deepening integration amongst their economies, but would give countries of the periphery the opportunity to preserve their room for manoeuver, their chances of development, and ultimately their dignity.