→ After the July 2015 referendum, Greek Prime Minister Alexis Tsipras presented the proposed prog... more → After the July 2015 referendum, Greek Prime Minister Alexis Tsipras presented the proposed program as an improvement over the one rejected by voters because it included debt relief and excluded the “tough” International Monetary Fund (IMF) from the troika. Now he will be asking Parliament to vote for tough measures for the exact opposite reasons. The prolonged negotiations with official creditors to conclude the second review of Greece’s third bailout increasingly resemble the catastrophic standoff with creditors in the first half of 2015 that led the country to the brink of Grexit. Back then, the newly elected radical left government led by Prime Minister Tsipras confronted creditors with demands for debt write-offs and an end to austerity. But Tsipras overplayed his hand, and the game of chicken — a standard model of conflict for two players in game theory — ended with political suicide: a third bailout agreement with harsh austerity measures, capital controls and a double-dip r...
During the week of July 14, CIGI’s Global Economy Program co-hosted a workshop with the Chinese A... more During the week of July 14, CIGI’s Global Economy Program co-hosted a workshop with the Chinese Academy of Social Sciences in Beijing to discuss Chinese perspectives on sovereign debt restructuring. This event, which was attended by select policy makers and scholars, followed the recent IMF executive board discussion on options for reform of its lending framework. At the margin of this workshop, a trio of CIGI senior fellows held additional meetings with policy makers, analysts, academics and market participants on sovereign debt issues in Beijing and Shanghai to take stock of Chinese views on next steps in the reform of sovereign debt management. In these discussions, there was clear recognition that China’s increasing involvement in international capital markets as both a creditor and an issuer brings with it greater exposure to other sovereigns’ debt problems and raises new issues and opportunities for China’s own liability management and leadership in international financial fora.
After facing prosecution for a decade, Andreas Georgiou, former President of Greece’s statistical... more After facing prosecution for a decade, Andreas Georgiou, former President of Greece’s statistical agency (ELSTAT) is now liable for paying damages for defamation to those who produced the infamous “Greek Statistics”!
Mundell pioneered the theory that serves as the basis for the design and implementation of econom... more Mundell pioneered the theory that serves as the basis for the design and implementation of economic policies in open economies. He extended the Keynesian closed-economy model, which focused on the relationship between interest rates and output, to open economies by introducing a third dimension: capital mobility and the exchange rate. It is hard to appreciate today his path-breaking thinking on economic issues that had yet to emerge, at a time when the world was dominated by fixed exchange rates and capital controls. His research formed the foundation of international macroeconomics. In awarding him the 1999 Nobel prize in economics, the Swedish Academy of Sciences notes that: " His contribution to monetary theory and optimum currency areas remains outstanding and has inspired generations of researchers. Mundell chose the problems he analyzed with almost prophetic accuracy, predicting the future course of the international monetary system and international capital markets".
→A smooth exit from Greece’s
current bailout program appears
likely in August 2018; however,
seve... more →A smooth exit from Greece’s current bailout program appears likely in August 2018; however, several more steps are necessary before Greece exits the program. → Greek Prime Minister Alexis Tsipras may try to capitalize on a smooth exit from the program by calling early elections in the fall of 2018, before politically painful cuts in pensions take effect. → The “twin deficits” in the fiscal and external accounts have all but disappeared, but fiscal imbalances have migrated to private sector balance sheets. Tax arrears and non-performing loans (NPLs) remain at record-high levels, while growth disappointed in 2017. → These challenges test Tsipras’ promise to make Greece “normal” again. Without further reform to improve the entrepreneurial climate and attract investment, the Greek economy risks being trapped in a low-growth equilibrium.
This paper covers four main areas: the motivation for capital markets union (CMU) and the expecte... more This paper covers four main areas: the motivation for capital markets union (CMU) and the expected benefits for the functioning of the European economy and financial system; the road map for its implementation and the obstacles and challenges the CMU project is facing in view of the Brexit vote; the role of the European Securities and Markets Authority versus national supervisors; and the steps taken so far in implementing the European Commission’s action plan aimed at identifying and removing obstacles to cross-border capital markets transactions, as well as the policy priorities and the sequencing of reforms given the complexity of the task ahead. The paper concludes that Brexit clearly represents a setback, as the United Kingdom has by far the deepest and most liquid capital markets in the European Union, but it also provides an opportunity to launch a more ambitious CMU agenda encompassing the remaining 27 EU members.
The current standoff with creditors
over the second review of the third
bailout increasingly rese... more The current standoff with creditors over the second review of the third bailout increasingly resembles the catastrophic 2015 negotiations that brought Greece to the brink of Grexit.
Valued at the price of the November 2015 recapitalization, the shares acquired in the four system... more Valued at the price of the November 2015 recapitalization, the shares acquired in the four systemic banks for €25.5bn in 2013 were worth €747 million, wiping out Greek taxpayers' equity and leaving the state holding a minority stake in each bank. The state’s stake in Alpha Bank fell from 83.7 percent in 2013 to 11 percent, and in Eurobank from 95.2 percent to just 2.4 percent. Recapitalizing Greek banks using contingent capital instruments for the entire €10 billion capital requirements under the adverse scenario would have limited the dilution of existing shareholders — and the loss for Greek taxpayers — but it is not clear whether this option was explored.
The euro area crisis precipitated large IMF loans, co-financed by euro area governments. The Gree... more The euro area crisis precipitated large IMF loans, co-financed by euro area governments. The Greek program in May 2010 required a change in the IMF's framework for exceptional access arrangements, which was put into place following the 2001 Argentine crisis. The IMF introduced a "systemic risk exemption" to the exceptional access framework that was meant to safeguard the resources of the IMF by introducing a debt sustainability criterion. In a new paper, the IMF is now proposing ditching the systemic exemption in favor of a new approach to addressing spillover risks in exceptional access programs (IMF 2014). The IMF proposal tries to strike a difficult balance between a framework that provides sufficient discretion to deal with severe debt crises on a case-by-case basis, and one that is sufficiently rules-based to prevent undue political influence in IMF decisions.
Banking union involves the transfer of authority over banking policy from the national to the Eur... more Banking union involves the transfer of authority over banking policy from the national to the European level. It is a major step in the economic and monetary integration of the European Union, and aims to end large taxpayer-funded bailouts and national policies that protect domestic banks at the expense of financial stability. This paper describes the rationale for banking union, four key pieces of legislation that constitute its legal foundation and two mechanism that form its key pillars. The ultimate test of whether banking union has worked, the paper concludes, is whether it will succeed in reversing the fragmentation in Europe’s financial system and breaking the vicious circle between banks and sovereigns.
At present, the market is severely mispricing Greece’s sovereign risk relative to the country’s f... more 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 privatization 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.
Since the collapse of Lehman Brothers five years ago, authorities have been grappling with the qu... more Since the collapse of Lehman Brothers five years ago, authorities have been grappling with the question of how systemically important banks, which are too big to fail (TBTF), can be recapitalized without using taxpayer money or causing bank runs. Besides imposing heavy costs on taxpayers, publicly funded bailouts give rise to moral hazard by generating expectations of government support. A TBTF bank that becomes insolvent must be recapitalized because the financial stability risks of liquidating a bank that is big, complex and interconnected with the rest of the financial system are considered to be too high. Up until the Cyprus rescue last April, governments recapitalized large banks with public funds in the absence of a better alternative.
This paper discusses two opposing views on global imbalances: The "traditional view",
which regar... more This paper discusses two opposing views on global imbalances: The "traditional view", which regards the imbalances as a threat to global economic and financial stability, and the "new paradigm" view, which considers that they are the natural consequence of economic and financial globalization. In terms of their policy implications, the traditional view focuses on monetary and fiscal policy decisions in the United States that need to be urgently reversed to avoid an abrupt unwinding of the imbalances involving a sell-off of dollar assets, a sharp increase in U.S. interest rates, and a hard landing for the global economy. By contrast, the new paradigm view considers that the imbalances will be resolved smoothly through the normal functioning of markets. The paper argues that an abrupt unwinding of imbalances is highly unlikely and advances a number of arguments in support of the new paradigm view.
→ After the July 2015 referendum, Greek Prime Minister Alexis Tsipras presented the proposed prog... more → After the July 2015 referendum, Greek Prime Minister Alexis Tsipras presented the proposed program as an improvement over the one rejected by voters because it included debt relief and excluded the “tough” International Monetary Fund (IMF) from the troika. Now he will be asking Parliament to vote for tough measures for the exact opposite reasons. The prolonged negotiations with official creditors to conclude the second review of Greece’s third bailout increasingly resemble the catastrophic standoff with creditors in the first half of 2015 that led the country to the brink of Grexit. Back then, the newly elected radical left government led by Prime Minister Tsipras confronted creditors with demands for debt write-offs and an end to austerity. But Tsipras overplayed his hand, and the game of chicken — a standard model of conflict for two players in game theory — ended with political suicide: a third bailout agreement with harsh austerity measures, capital controls and a double-dip r...
During the week of July 14, CIGI’s Global Economy Program co-hosted a workshop with the Chinese A... more During the week of July 14, CIGI’s Global Economy Program co-hosted a workshop with the Chinese Academy of Social Sciences in Beijing to discuss Chinese perspectives on sovereign debt restructuring. This event, which was attended by select policy makers and scholars, followed the recent IMF executive board discussion on options for reform of its lending framework. At the margin of this workshop, a trio of CIGI senior fellows held additional meetings with policy makers, analysts, academics and market participants on sovereign debt issues in Beijing and Shanghai to take stock of Chinese views on next steps in the reform of sovereign debt management. In these discussions, there was clear recognition that China’s increasing involvement in international capital markets as both a creditor and an issuer brings with it greater exposure to other sovereigns’ debt problems and raises new issues and opportunities for China’s own liability management and leadership in international financial fora.
After facing prosecution for a decade, Andreas Georgiou, former President of Greece’s statistical... more After facing prosecution for a decade, Andreas Georgiou, former President of Greece’s statistical agency (ELSTAT) is now liable for paying damages for defamation to those who produced the infamous “Greek Statistics”!
Mundell pioneered the theory that serves as the basis for the design and implementation of econom... more Mundell pioneered the theory that serves as the basis for the design and implementation of economic policies in open economies. He extended the Keynesian closed-economy model, which focused on the relationship between interest rates and output, to open economies by introducing a third dimension: capital mobility and the exchange rate. It is hard to appreciate today his path-breaking thinking on economic issues that had yet to emerge, at a time when the world was dominated by fixed exchange rates and capital controls. His research formed the foundation of international macroeconomics. In awarding him the 1999 Nobel prize in economics, the Swedish Academy of Sciences notes that: " His contribution to monetary theory and optimum currency areas remains outstanding and has inspired generations of researchers. Mundell chose the problems he analyzed with almost prophetic accuracy, predicting the future course of the international monetary system and international capital markets".
→A smooth exit from Greece’s
current bailout program appears
likely in August 2018; however,
seve... more →A smooth exit from Greece’s current bailout program appears likely in August 2018; however, several more steps are necessary before Greece exits the program. → Greek Prime Minister Alexis Tsipras may try to capitalize on a smooth exit from the program by calling early elections in the fall of 2018, before politically painful cuts in pensions take effect. → The “twin deficits” in the fiscal and external accounts have all but disappeared, but fiscal imbalances have migrated to private sector balance sheets. Tax arrears and non-performing loans (NPLs) remain at record-high levels, while growth disappointed in 2017. → These challenges test Tsipras’ promise to make Greece “normal” again. Without further reform to improve the entrepreneurial climate and attract investment, the Greek economy risks being trapped in a low-growth equilibrium.
This paper covers four main areas: the motivation for capital markets union (CMU) and the expecte... more This paper covers four main areas: the motivation for capital markets union (CMU) and the expected benefits for the functioning of the European economy and financial system; the road map for its implementation and the obstacles and challenges the CMU project is facing in view of the Brexit vote; the role of the European Securities and Markets Authority versus national supervisors; and the steps taken so far in implementing the European Commission’s action plan aimed at identifying and removing obstacles to cross-border capital markets transactions, as well as the policy priorities and the sequencing of reforms given the complexity of the task ahead. The paper concludes that Brexit clearly represents a setback, as the United Kingdom has by far the deepest and most liquid capital markets in the European Union, but it also provides an opportunity to launch a more ambitious CMU agenda encompassing the remaining 27 EU members.
The current standoff with creditors
over the second review of the third
bailout increasingly rese... more The current standoff with creditors over the second review of the third bailout increasingly resembles the catastrophic 2015 negotiations that brought Greece to the brink of Grexit.
Valued at the price of the November 2015 recapitalization, the shares acquired in the four system... more Valued at the price of the November 2015 recapitalization, the shares acquired in the four systemic banks for €25.5bn in 2013 were worth €747 million, wiping out Greek taxpayers' equity and leaving the state holding a minority stake in each bank. The state’s stake in Alpha Bank fell from 83.7 percent in 2013 to 11 percent, and in Eurobank from 95.2 percent to just 2.4 percent. Recapitalizing Greek banks using contingent capital instruments for the entire €10 billion capital requirements under the adverse scenario would have limited the dilution of existing shareholders — and the loss for Greek taxpayers — but it is not clear whether this option was explored.
The euro area crisis precipitated large IMF loans, co-financed by euro area governments. The Gree... more The euro area crisis precipitated large IMF loans, co-financed by euro area governments. The Greek program in May 2010 required a change in the IMF's framework for exceptional access arrangements, which was put into place following the 2001 Argentine crisis. The IMF introduced a "systemic risk exemption" to the exceptional access framework that was meant to safeguard the resources of the IMF by introducing a debt sustainability criterion. In a new paper, the IMF is now proposing ditching the systemic exemption in favor of a new approach to addressing spillover risks in exceptional access programs (IMF 2014). The IMF proposal tries to strike a difficult balance between a framework that provides sufficient discretion to deal with severe debt crises on a case-by-case basis, and one that is sufficiently rules-based to prevent undue political influence in IMF decisions.
Banking union involves the transfer of authority over banking policy from the national to the Eur... more Banking union involves the transfer of authority over banking policy from the national to the European level. It is a major step in the economic and monetary integration of the European Union, and aims to end large taxpayer-funded bailouts and national policies that protect domestic banks at the expense of financial stability. This paper describes the rationale for banking union, four key pieces of legislation that constitute its legal foundation and two mechanism that form its key pillars. The ultimate test of whether banking union has worked, the paper concludes, is whether it will succeed in reversing the fragmentation in Europe’s financial system and breaking the vicious circle between banks and sovereigns.
At present, the market is severely mispricing Greece’s sovereign risk relative to the country’s f... more 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 privatization 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.
Since the collapse of Lehman Brothers five years ago, authorities have been grappling with the qu... more Since the collapse of Lehman Brothers five years ago, authorities have been grappling with the question of how systemically important banks, which are too big to fail (TBTF), can be recapitalized without using taxpayer money or causing bank runs. Besides imposing heavy costs on taxpayers, publicly funded bailouts give rise to moral hazard by generating expectations of government support. A TBTF bank that becomes insolvent must be recapitalized because the financial stability risks of liquidating a bank that is big, complex and interconnected with the rest of the financial system are considered to be too high. Up until the Cyprus rescue last April, governments recapitalized large banks with public funds in the absence of a better alternative.
This paper discusses two opposing views on global imbalances: The "traditional view",
which regar... more This paper discusses two opposing views on global imbalances: The "traditional view", which regards the imbalances as a threat to global economic and financial stability, and the "new paradigm" view, which considers that they are the natural consequence of economic and financial globalization. In terms of their policy implications, the traditional view focuses on monetary and fiscal policy decisions in the United States that need to be urgently reversed to avoid an abrupt unwinding of the imbalances involving a sell-off of dollar assets, a sharp increase in U.S. interest rates, and a hard landing for the global economy. By contrast, the new paradigm view considers that the imbalances will be resolved smoothly through the normal functioning of markets. The paper argues that an abrupt unwinding of imbalances is highly unlikely and advances a number of arguments in support of the new paradigm view.
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Papers by Miranda Xafa
current bailout program appears
likely in August 2018; however,
several more steps are necessary
before Greece exits the program.
→ Greek Prime Minister Alexis
Tsipras may try to capitalize on a
smooth exit from the program by
calling early elections in the fall
of 2018, before politically painful
cuts in pensions take effect.
→ The “twin deficits” in the fiscal
and external accounts have all but
disappeared, but fiscal imbalances
have migrated to private sector
balance sheets. Tax arrears and
non-performing loans (NPLs)
remain at record-high levels, while
growth disappointed in 2017.
→ These challenges test Tsipras’
promise to make Greece “normal”
again. Without further reform
to improve the entrepreneurial
climate and attract investment, the
Greek economy risks being trapped
in a low-growth equilibrium.
over the second review of the third
bailout increasingly resembles the
catastrophic 2015 negotiations that
brought Greece to the brink of Grexit.
A TBTF bank that becomes insolvent must be recapitalized because the financial stability risks of liquidating a bank that is big, complex and interconnected with the rest of the financial system are considered to be too high. Up until the Cyprus rescue last April, governments recapitalized large banks with public funds in the absence of a better alternative.
which regards the imbalances as a threat to global economic and financial stability, and the
"new paradigm" view, which considers that they are the natural consequence of economic
and financial globalization. In terms of their policy implications, the traditional view focuses
on monetary and fiscal policy decisions in the United States that need to be urgently reversed
to avoid an abrupt unwinding of the imbalances involving a sell-off of dollar assets, a sharp
increase in U.S. interest rates, and a hard landing for the global economy. By contrast, the
new paradigm view considers that the imbalances will be resolved smoothly through the
normal functioning of markets. The paper argues that an abrupt unwinding of imbalances is
highly unlikely and advances a number of arguments in support of the new paradigm view.
current bailout program appears
likely in August 2018; however,
several more steps are necessary
before Greece exits the program.
→ Greek Prime Minister Alexis
Tsipras may try to capitalize on a
smooth exit from the program by
calling early elections in the fall
of 2018, before politically painful
cuts in pensions take effect.
→ The “twin deficits” in the fiscal
and external accounts have all but
disappeared, but fiscal imbalances
have migrated to private sector
balance sheets. Tax arrears and
non-performing loans (NPLs)
remain at record-high levels, while
growth disappointed in 2017.
→ These challenges test Tsipras’
promise to make Greece “normal”
again. Without further reform
to improve the entrepreneurial
climate and attract investment, the
Greek economy risks being trapped
in a low-growth equilibrium.
over the second review of the third
bailout increasingly resembles the
catastrophic 2015 negotiations that
brought Greece to the brink of Grexit.
A TBTF bank that becomes insolvent must be recapitalized because the financial stability risks of liquidating a bank that is big, complex and interconnected with the rest of the financial system are considered to be too high. Up until the Cyprus rescue last April, governments recapitalized large banks with public funds in the absence of a better alternative.
which regards the imbalances as a threat to global economic and financial stability, and the
"new paradigm" view, which considers that they are the natural consequence of economic
and financial globalization. In terms of their policy implications, the traditional view focuses
on monetary and fiscal policy decisions in the United States that need to be urgently reversed
to avoid an abrupt unwinding of the imbalances involving a sell-off of dollar assets, a sharp
increase in U.S. interest rates, and a hard landing for the global economy. By contrast, the
new paradigm view considers that the imbalances will be resolved smoothly through the
normal functioning of markets. The paper argues that an abrupt unwinding of imbalances is
highly unlikely and advances a number of arguments in support of the new paradigm view.