Policy coordination, conflicting national interests and the European debt crisis

Some Important Characteristics of Asset Bubbles and Financial Crises

“…Lothian [22] then discussed the role of the chronic government overspending and hence the resultant high debt/GDP ratio in Greece and Portugal, the role of the formation and then the bursting of housing bubbles in Spain and Ireland, as well as the pre-crisis credit boom, current account deficit and financial imbalance in these economies as the underlying causes of the crisis. The above papers also provided interesting discussion on the deepening process of the crisis, while Panico and Purificato [23] provided a detailed chronology of the major events and policy measures implemented during the crisis. Meanwhile, Peersman [24] and Gambacorta et al [25] showed that the European Central Bank (ECB) unconventional monetary policies increased output and inflation.…”

TARGET2 Imbalances and the ECB as Lender of Last Resort

“…The second position, which we called the peripheral interpretation, argued that the TARGET2 balances reflected the high strains in the financial markets, mainly attributable to a lower confidence in the ability of the European institutions to face the sovereign debt crisis (Panico and Purificato [7], ECB [8][9][10], De Grauwe and Ji [11], Deutsche Bundesbank [12], Lavoie [13]). What has been observed was a sort of overshooting in sovereign bonds' yields of the peripheral countries: regardless of the economic fundamentals and the alleged divergence in the level of competitiveness between EMU member States, financial markets incorporated in the price system and, in particular, in sovereign bonds' yields, the expectation of a return for the peripheral countries to the respective national currencies with a corresponding devaluation.…”

“…Further to this, it is possible to set ex ante and ex post conditions against which the potential borrower can actually obtain the liquidity needed. 7 The European System of Central Banks (ESBC), that includes the ECB and the national central banks of European Union member States, has the principal aim of guaranteeing the price stability. In this view it defines and implements the monetary policy.…”

“…The ESBC is directed by the ECB's decision-making bodies, namely, the Governing Council and the Executive Board. The ECB function is to assure that the tasks assigned to the ESBC are carried out either by its own activities or by those 7 An example of ex ante conditionality can be the request of a specific kind of collateral, whereas ex post conditionality can be intended as the request of policy implementation (strengthening of the banking sector, fiscal adjustment, correction of excessive deficit, growth enhancing reforms).…”

Volatility transmission across currencies and stock markets: GIIPS in crisis

“…As the heterogeneous fiscal structures among Eurozone members restrain the viability of the monetary union (De Grauwe, 2009;Panico and Purificato, 2013), the weak fiscal links of this union are the economies that seem to diverge from competitive economies and creditworthy sovereign debtors of the union's north: Greece, Italy, Ireland, Portugal and Spain (GIIPS). There are qualitative differences among the economic troubles in each of these countries (e.g.…”