scholarly journals Limitations of the government budget constraint: Users vs. issuers of the currency

2011 ◽  
Vol 58 (1) ◽  
pp. 57-66 ◽  
Author(s):  
Stephanie Kelton
Keyword(s):  
Sovereign Debt ◽  
Full Employment ◽  
Debt Crisis ◽  
Balance Sheets ◽  
Fiscal Adjustment ◽  
Advanced Economies ◽  
Fiscal Support ◽  
Bona Fide ◽  
The Government ◽  
Run Up

The financial crisis and ensuing economic meltdown has led to sharp increases in the deficits and debt levels of many advanced economies. The run-up in public sector indebtedness helped to restore private sector balance sheets, laying the foundation for economic recovery in these regions. But the so-called ?sovereign? debt crisis in the Eurozone has undermined the fiscal resolve that has, thus far, kept truly sovereign governments from slipping into a bona fide depression. Fearful of becoming the next Greece, governments that could allow an unlimited fiscal adjustment to restore full employment, are methodically weakening their fiscal support mechanisms and setting themselves on a path to becoming the next Japan.

Reforming the Regulatory Treatment of Sovereign Exposures in Banking Regulation

2020 ◽  
Vol 53 (1) ◽  
pp. 81-122
Author(s):  
André Sterzel
Keyword(s):  
Financial Stability ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Banking Regulation ◽  
Jel Classification ◽  
Bank Capital ◽  
Exposure Limits ◽  
Government Bonds ◽  
Balance Sheets ◽  
Bank Balance Sheets

Abstract The European sovereign debt crisis has shown the tight linkage between sovereign and bank balance sheets. In the aftermath of the crisis, several reforms have been discussed in order to mitigate the sovereign-bank nexus. These reforms include the abolishment of preferential government bond treatment in banking regulation. This paper gives a detailed overview of literature and data which are closely related to the existing preferential sovereign bond treatment in bank regulation and highlights the need for reforms especially in the euro area. Against this background, the following three regulatory reforms are described and discussed: (i) positive risk weights for government bonds in bank capital regulation, (ii) sovereign exposure limits, and (iii) haircuts for government bonds in bank liquidity regulation. The discussion focusses on the effects of these reforms for bank behaviour and financial stability. JEL Classification: H63, H12, G11, G18

Rothschilds’ “Delicate and Difficult Task”: Reputation, Political Instability, and the Brazilian Rescue Loans of the 1890s

2015 ◽  
Vol 16 (2) ◽  
pp. 381-412 ◽  
Author(s):  
LEONARDO WELLER
Keyword(s):  
Economic Policy ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Political Instability ◽  
The State ◽  
The Political ◽  
Political Situation ◽  
Brazilian Government ◽  
The Government ◽  
The Relationship

The London House of Rothschild depended on Brazil to maintain its reputation. This became a problem in the 1890s, when the Brazilian government almost defaulted on its sovereign debt after a change of regime had made politics unstable and economic policy unorthodox. This article shows how the relationship between the bank and the state developed to the point that Rothschilds was forced to rescue its client. Exposure enabled Brazil to implement policies designed to defend the regime at the expense of payment capacity without defaulting. The debt crisis ended only after the political situation stabilized toward the close of the century, when the bank pressured the government to tighten economic policy.

Statement by the Managing Director to the International Monetary and Financial Committee on the Global Economy and Financial Markets

Policy Papers ◽  
2011 ◽  
Vol 2011 (28) ◽  
Author(s):  
Keyword(s):  
Financial Markets ◽  
Global Economy ◽  
Developing Economies ◽  
Emerging Market ◽  
Balance Sheets ◽  
Fiscal Adjustment ◽  
Advanced Economies ◽  
Global Demand ◽  
Private Demand ◽  
Major Progress

The recovery is solidifying. However, old policy challenges still need to be fully addressed and new challenges are arising, especially on account of rising commodities prices. In many advanced economies the handoff from public to private demand is proceeding. But unemployment remains high and weak public balance sheets and still vulnerable financial sectors mean that the recovery is subject to downside risks. In many emerging market economies, overheating and financial imbalances present growing policy concerns. Monetary policy should stay accommodative in advanced economies, but needs further tightening in a number of emerging and developing economies to rein in inflationary pressure and rapid credit growth. Additionally, in emerging surplus economies, real exchange rate appreciation is needed to help contain inflation and support global demand rebalancing. In most economies, the time has come to begin fiscal adjustment by implementing measures to steadily reduce debt ratios toward more prudent levels. Moreover, financial sector repair and reform need to accelerate. Absent major progress on all these fronts, the recovery will remain vulnerable and job creation will continue to fall short of requirements in many parts of the world.

Debt crisis will delay Zimbabwe economic recovery

2015 ◽  
Keyword(s):  
Sovereign Debt ◽  
Debt Crisis ◽  
Vice President ◽  
Debt Financing ◽  
Illegal Immigrants ◽  
Short Term ◽  
Content Type ◽  
The Government ◽  
Remittance Flows ◽  
Do So

Subject Outlook for Zimbabwe's sovereign debt. Significance Secretary to the Treasury Willard Manungo earlier this month revealed that the government owes its diplomats 10 million dollars in salary arrears. It is the latest development in Zimbabwe's fiscal crunch, worsened by President Robert Mugabe's government's limited access to debt financing. This is forcing it to pursue complex, simultaneous negotiations with multiple creditors. Impacts Limited financing will hurt government plans to import 700,000 tonnes of maize necessary to address drought-induced shortfalls. South Africa's restrictive visa regime and clampdowns on illegal immigrants could begin to hurt remittance flows to Zimbabwe. Former Vice-President Joice Mujuru is unlikely to announce a new party in the short term, but may do so before polls in 2018.

Nigerian banks will struggle to repeat 2017 results

2018 ◽  
Keyword(s):  
Small Businesses ◽  
Banking Sector ◽  
Oil And Gas ◽  
National Elections ◽  
Treasury Bills ◽  
Content Type ◽  
Balance Sheets ◽  
Domestic Debt ◽  
The Government ◽  
Run Up

Subject Nigerian banking sector. Significance Some of Nigeria’s largest banks made significant profits in 2017 despite the country’s recession, benefitting mainly from high-yielding Nigerian Treasury Bills. This is unlikely to be repeated this year, with yields falling as the government replaces expensive domestic debt with cheaper Eurobonds, and banks attempt to shore up their balance sheets. Higher oil prices will help this process, yet many smaller banks are struggling to replicate their larger rivals' success. Impacts A restructuring of telecommunications company 9Mobile’s loan would benefit banks' non-performing loan numbers. Any uptick in Niger Delta insecurity could negatively impact banks, as most have significant loans with the upstream oil and gas sector. The CBN may issue more loans via commercial banks to small businesses and farmers in the run-up to next year's national elections.

Managing the Eurozone Crisis

2020 ◽  
pp. 223-238
Author(s):  
Manuela Moschella
Keyword(s):  
Crisis Management ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Eurozone Crisis ◽  
Management Competencies ◽  
Advanced Economies ◽  
Institutional Architecture ◽  
And Control ◽  
Shed Light ◽  
The Imf

In the wake of the sovereign debt crisis, some of the most advanced economies in the world turned to the IMF for financial assistance. Not only did the Eurozone countries ask for the Fund’s help; they also incorporated the IMF into the institutional architecture for handling crises in the European Monetary Union. This chapter uses competence–control theory to shed light on the puzzles raised by the decision to enlist the IMF in Eurozone crisis management. Firstly, the chapter argues that the Eurozone’s motivation for enlisting the IMF can be found in the competence deficit its governors confronted in managing the crisis. In particular, Eurozone countries lacked sufficient competence (including expertise, money, and credibility) to formulate and enforce adjustment in crisis-hit countries. By enlisting the IMF, Eurozone countries acquired the necessary competence but had to share control. Secondly, the chapter shows that the tradeoff between competence and control shifted over time: even after creating their own crisis management competencies, member states continued to enlist the IMF as a way to reduce the control problems that creditor states confronted in enforcing adjustment in debtor countries.

The Strength and Fragility of the Brazilian Economy

2015 ◽  
Vol 67 (1) ◽  
pp. 17 ◽  
Author(s):  
Rosa Maria Marques ◽  
Paulo Nakatani
Keyword(s):  
Economic Performance ◽  
Sovereign Debt ◽  
Index Volume ◽  
Debt Crisis ◽  
Complex Task ◽  
Sovereign Debt Crisis ◽  
Macroeconomic Policies ◽  
Public Displays ◽  
Global Recession ◽  
The Government

Analyzing the Brazilian economy is a difficult and complex task; the current indicators register results ranging from excellent to mediocre and worrisome, depending on the variable observed. For example, the nation has advanced into modernity in a few sectors, while at the same time, in recent years, new forms of dependency from the center of capitalism deepened. Further complexities arise when, beyond the economy, one takes into consideration not only the results of so-called "inclusion" policies and the popularity of President Dilma Rousseff (popularly referred to as "Dilma"), but also the number of strikes and public displays of disenchantment that are emerging in every corner of the country.&hellp; To summarize some of the conclusions: since the government of Luis In&aacute;cio Lula da Silva ("Lula"), the Brazilian economy has widened its internal market through policies that have raised the minimal wage, transferred income to the poorest within the nation, increased the availability of credit to the low and middle segments of the population, and reduced taxation (mainly on manufactured goods in the essential consumption basket). Such widening of the market, with a low impact on imports, would in theory ensure the maintenance of a certain level of growth, regardless of the international dynamics, and, indeed, it has helped Brazil reach a positive economic performance during the worst of the recent global economic crisis and its aftermath.&hellp; Nonetheless, when the impacts of the global recession deepened with the sovereign debt crisis in Europe, these macroeconomic policies did not yield the same effect, at most achieving modest growth.<p class="mrlink"><p class="mrpurchaselink"><a href="http://monthlyreview.org/index/volume-67-number-1" title="Vol. 67, No. 1: May 2015" target="_self">Click here to purchase a PDF version of this article at the <em>Monthly Review</em> website.</a></p>

scholarly journals The Invisible Hand of the Government: Moral Suasion during the European Sovereign Debt Crisis

2019 ◽  
Vol 11 (4) ◽  
pp. 346-379 ◽  
Author(s):  
Steven Ongena ◽  
Alexander Popov ◽  
Neeltje Van Horen
Keyword(s):  
Sovereign Debt ◽  
Debt Crisis ◽  
Regulatory Compliance ◽  
Government Support ◽  
Invisible Hand ◽  
Sovereign Debt Crisis ◽  
European Sovereign Debt Crisis ◽  
Moral Suasion ◽  
The Government ◽  
Domestic Banks

Using proprietary data on banks’ monthly securities holdings, we show that during the European sovereign debt crisis, domestic banks in fiscally stressed countries were considerably more likely than foreign banks to increase their holdings of domestic sovereign bonds during months when the government needed to roll over a relatively large amount of maturing debt. This result cannot be explained by risk shifting, carry trading, or regulatory compliance. Domestic banks that received government support, are small, or with weaker balance sheets were particularly susceptible to “moral suasion,” while governance of banks played less of a role. (JEL D72, E62, G21, G28, H11, H63).

The crisis in Greece and the EU-IMF rescue package: Determinants and pitfalls

2012 ◽  
Vol 62 (1) ◽  
pp. 15-39 ◽  
Author(s):  
Anna Visvizi
Keyword(s):  
Sovereign Debt ◽  
Debt Crisis ◽  
Free Market ◽  
Interesting Case ◽  
Sovereign Debt Crisis ◽  
Missed Opportunities ◽  
The Public ◽  
The Government ◽  
Free Market Reforms ◽  
The Eu

The sovereign debt crisis in Greece represents a very interesting case in which the Greek government succeeded in transforming domestic fiscal deficit problem, overspending and fear of free market reforms into a European challenge consistent with justifiable concerns about the sustainability of the euro-project and its likely future. In this paper, the roots of the crisis and the way of addressing it are discussed. In particular the features, drawbacks, missed opportunities and pitfalls of the €110 billion EU/IMF rescue package granted to Greece are examined. It is argued that the government’s focus on taxation rather than on politically costly privatization and cutbacks in the public sector undermined economic activity in the country, decreased the government’s revenue, and spawned disincentives for investment, without generating growth and without improving competitiveness. In brief, rather than contributing to economic recovery, the opposite was achieved as a result of the measures implemented by the government.

scholarly journals Real Effects of Financial Distress: The Role of Heterogeneity

2021 ◽  
Author(s):  
Francisco Buera ◽  
Sudipto Karmakar
Keyword(s):  
Financial Distress ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Balance Sheets ◽  
Real Effects ◽  
Theoretical Perspectives ◽  
Standard Models ◽  
Financial Shock

Abstract Which firms are more sensitive to an aggregate financial shock? What can be learnt from these heterogeneous responses? We evaluate and answer these questions from both empirical and theoretical perspectives. Using micro data from Portugal during the sovereign debt crisis we find that highly leveraged firms and firms with a larger share of short-term debt on their balance sheets contracted more in the aftermath of the financial shock. We analyse the conditions under which leverage and debt maturity determine the sensitivity of firms’ investment decisions to financial shocks in standard models of investment under financial frictions. In doing so, we extend these models to feature a maturity choice. We show that simple versions of these models are not consistent with the observed heterogeneous responses. The model needs the presence of frictions when issuing long-term debt to rationalise the empirical findings.

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