An update of the underlying data to September 2012 suggests that private capital outflows from a number of Southern European countries has showed signs of stabilisation, over recent months. Read more
Bruegel blog
-
Capital outflows in the euro area: is there a sign of relief?
13th December 2012
-
Spain: a tale of two crises
21st September 2012
In March, Jean Pisani-Ferry and I documented a significant capital flight affecting the euro-area periphery. The flight started in Greece, spilled over to the other programme countries and eventually reached Italy and Spain during summer 2011. The latest data shows that the situation is becoming extremely serious in Spain, where capital outflows since April 2011, when the acute phase of the crisis started, have reached 30% of pre-crisis GDP. Figure 1 – Cumulative capital inflows (% 2007 GDP) Note: data from national authorities. Capital flows are cumulated on the 2001 international investment liabilities This is not the first time that Spain has experienced a sudden stop, and looking at capital flights in an historical perspective is enlightening. Applying the methodology… Read more
-
Introducing the Bruegel dataset of sovereign bonds holdings (and more)
27th August 2012
Early this year Jean Pisani-Ferry and I wrote a policy contribution titled “Who’s afraid of sovereign bonds”, where we were investigating the role of euro area banks in holding of domestic government debt securities, one of the important aspects of the sovereign-banking crisis loop. In order to do so, we needed to know how the share of domestic banks in total holdings had evolved over time. This required a breakdown of sovereign bond holdings by the different sectors of the economy, for each country and at the highest possible frequency. But in the process, we discovered that there is neither a single source for this kind of information, nor any common practice across the institutions providing the data[1]. We therefore… Read more
-
Capital flight in the Euro area: from bad to worse
12th July 2012
In a recent policy contribution we investigated the dynamics of capital flows in five Southern euro area countries. We found that Greece, Ireland, Portugal, Spain and Italy all experienced significant private capital inflows from 2002 to 2007-2009, followed by unambiguous and rather sudden outflows. The sudden stops are concentrated in three waves (figure 1): the global financial crisis in 2008/09; spring 2010 in correspondence to the Greek Programme and summer 2011. Updated figures show that the latest wave of sudden stops is still ongoing, with the reversal of capital flows affecting especially Italy and Spain. Figure 1 Source: authors calculations These reversals are large enough to qualify as a “sudden stops” (a common feature of balance-of-payment-crises in emerging countries) but… Read more
-
Chart of the week - The consequences of financial disintegration
3rd May 2012
The recent ECB report on "Financial Integration in Europe" has exposed in detail the deterioration in European financial market integration caused by the crisis. Banks located in the weakest countries find it more and more difficult to access liquidity, and this translates into segmented funding conditions for the private sector as a whole and forces the ECB to play an ever bigger role as financial intermediary of last resort in lieu of a structurally malfunctioning interbank market. Figure 1: Financial disintegration and the mediating role fo the ECB Source: National Central Banks; ECB. South = Greece, Ireland, Portugal, Spain, Italy; North = Germany, Luxembourg, Finland, Belgium. Figure 1 shows that countries in the South of the Euro Area have been… Read more
-
Sudden stops in the euro area
3rd April 2012
Many analysts and observers have put forward that the euro crisis is a balance-of-payments crisis at least as much as a fiscal crisis. The issue has gained further relevance with the widening of imbalances among euro-area central banks within the Target 2 settlement system and has important implications for both the short and the long-term policy responses. In a recent paper, we provide evidence of capital flows reversals in Greece, Ireland, Portugal, Spain and Italy and show that on the basis of the Calvo criteria, these episodes can be characterised as Sudden Stop. We discuss the implications of this finding for the Target2 discussion and the appropriate responses to the euro crisis. Read more
-
Actual and cosmetic changes in debt sustainability
15th March 2012
The leaked Debt Sustainability Analysis (DSA) produced by the IMF in February 2012 looked into the economic developments that would arise in Greece following two different scenarios, a baseline and an alternative scenario. A revised version of the DSA was leaked on March 11th, incorporating the recent agreement reached on Private Sector Involvement (PSI) and Official Sector Involvement (OSI). Read more
-
The leaked second economic adjustment programme for Greece
15th March 2012
The European Commission has produced an new document on the Second Economic Adjustment Programme for Greece, which you can find here. The salient features of the report are: 1.The economic growth outlook has been far worse than expected, 2.Fiscal targets for 2012 and subsequent years have been revised to take into account the unfavourable macroeconomic development, 3.However, current projections reveal a cumulated fiscal gap in 2013-14 of 5½ percent of GDP Read more
-
What is the meaning of TARGET balances?
29th February 2012
TARGET2 (the centralised payment system operated by euro area central banks) has recently drawn attention, due to the constantly diverging net balances of Southern and Northern countries. Divergence started at the onset of the financial crisis and has accellerated during summer 2011, with the intensifying of the euro crisis and of tensions on the interbank market. TARGET2 is the operational tool through which National Central Banks (NCBs) of euro are Member States provide payment and settlement services for intra-Euro Area transactions. The settlement of payments between National Central Banks in different Euro Area countries gives rise to intra-Eurosystem cross-border obligations. All these obligations are aggregated and netted out at the end of each single business day, leaving each National Central Bank with a certain net TARGET2 balance against the… Read more