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Policy Contribution

The Greek debt trap: an escape plan

Without corrective measures, Greek public debt will exceed 190 percent of GDP, instead of peaking at the anyway too-high target ratio of 167 percent of GDP of the March 2012 financial assistance programme. The rise is largely due to a negative feedback loop between high public debt and the collapse in GDP, and endangers Greek membership of the euro area. But a Greek exit would have devastating impacts both inside and outside Greece.

By: Date: November 9, 2012 European Macroeconomics & Governance Tags & Topics

A small reduction in the interest rate on bilateral loans, the exchange of European Central Bank holdings, buy-back of privately-held debt, and frontloading of some privatisation receipts are unlikely to be sufficient.

A credible resolution should involve the reduction of the official lending rate to zero until 2020, an extension of the maturity of all official lending, and indexing the notional amount of all official loans to Greek GDP. Thereby, the debt ratio would fall below 100 percent of GDP by 2020, and if the economy deteriorates further, there will not be a need for new arrangements. But if growth is better than expected, official creditors will also benefit.

In exchange for such help, the fiscal sovereignty of Greece should be curtailed further. An extended privatisation plan and future budget surpluses may be used to pay back the debt relief.

The Greek fiscal tragedy highlights the need for a formal debt restructuring mechanism.

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Blog Post

Zsolt Darvas
Pia Hüttl

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By: Zsolt Darvas and Pia Hüttl Topic: European Macroeconomics & Governance Date: May 7, 2016
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By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: April 11, 2016
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Policy Contribution

WhIch fiscal union for the euro area?

Which fiscal union for the euro area?

At the current level of political and societal integration, a large federal budget is unrealistic in the euro area. The authors make three recommendations that would lead national fiscal policies to be more stabilising with respect to the economic cycle, while achieving long-term sustainability. They also recommend a move towards a European unemployment insurance scheme targeted at ‘large’ shocks, and a minimum set of labour-market harmonisation criteria.

By: Agnès Bénassy-Quéré, Xavier Ragot and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: February 18, 2016
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Opinion

Ashoka Mody

Greece: a European tragedy

Wrapped up in the details of pension reforms and home foreclosure—matters that, no doubt, have important consequences for many— the big picture has faded into the background. It is easy to forget how we got here, and where we are going.

By: Ashoka Mody Topic: European Macroeconomics & Governance Date: January 14, 2016
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Blog Post

Silvia Merler

Greek bank recap

The ECB published the comprehensive assessment of the four major Greek banks (Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank) yesterday, in line with what was agreed in the third bailout programme for Greece. This exercise will form the basis for the recapitalisation operation foreseen as part of the programme, which will need to be carried out soon.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: November 2, 2015
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Working Paper

Internationalising the currency while leveraging massively: the case of China

Internationalising the currency while leveraging massively: the case of China

This paper reviews the steps that China has taken towards financial reform with a particular focus on capital account liberalisation and internationalisation of the use of the renminbi.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: October 29, 2015
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Uuriintuya Batsaikhan
Pia Hüttl

The global debt overhang

What’s at stake: Seven years after the financial crisis, recovery is still weak in most parts of the global economy. The general debt overhang across sectors, which was not reduced in the last years, has often been cited as as the main factor weighing on global growth and inflation.

By: Uuriintuya Batsaikhan and Pia Hüttl Topic: Global Economics & Governance Date: October 26, 2015
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The Finance Ministry of Greece has published the preliminary budget execution bulletin for September, covering the first 9 months of the year. It reveals a decline in the primary surplus, compared to the over performance recorded in recent months.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: October 19, 2015
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Opinion

Ashoka Mody

No lessons learned

With the drag from austerity, the debt-deflation spiral, and a weak international economy, where does the projected Greek rebound come from?

By: Ashoka Mody Topic: European Macroeconomics & Governance Date: September 23, 2015
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Blog Post

Silvia Merler

Greece budget update - September

Last week, while Europe was anticipating the Greek election, the Greek finance ministry published the latest budget execution bulletin, covering January-August 2015. It shows an unchanged primary surplus, underperforming revenues and what might be the first small steps towards the normalization of the primary expenditure path.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: September 22, 2015
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This timeline underpins some of the main events that determined the origins and developments of the euro crisis and highlights our contributions to the debates that the crisis has brought into the academic and policymaking agenda

By: Bruegel Topic: European Macroeconomics & Governance Date: September 16, 2015
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Blog Post

Silvia Merler

Greece budget update - August

The Greek finance ministry published last week the latest budget execution bulletin. The state budget primary balance increased significantly during July. Greece recorded a primary surplus of 1.6 billion euros in July, which takes the cumulated primary surplus for the first six months of the year at 3.5 billion euros, against a primary surplus target of 2.99 billion euros. This is the highest monthly value for the primary surplus since August 2014.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: August 17, 2015
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