EUCOM Economic Analysis - Part I

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El Eurogrupo dar hasta 100.000 millones para el rescate sin imponer nuevos ajustes al Gobierno, Carlos Segovia | Javier G. Gallego | Madrid | Bruselas
Actualizado sbado 09/06/2012 19:10 horas, El Mundo, http://www.elmundo.es/elmundo/2012/0...339227352.html

Despus de casi tres horas de conversaciones sobre el rescate de la banca espaola, los ministros de Finanzas de la zona euro han llegado a un principio de acuerdo en el que se aportar una ayuda mxima de 100.000 millones de euros, sin imponer condiciones de poltica econmica al Gobierno de Rajoy, segn ha podido saber ELMUNDO.es de fuentes prximas a la reunin.

Las condiciones se centran exclusivamente a la banca espaola. Entre otras incluye una limitacin en la poltica de dividendo y en la remuneracin de los directivos.

Conditionality, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Conditionality

Conditionality is typically employed by the International Monetary Fund, the World Bank or a donor country with respect to loans, debt relief and financial aid. Conditionalities may involve relatively uncontroversial requirements to enhance aid effectiveness, such as anti-corruption measures, but they may involve highly controversial ones, such as austerity or the privatization of key public services, which may provoke strong political opposition in the recipient country. These conditionalities are often grouped under the label structural adjustment as they were prominent in the structural adjustment programs following the debt crisis of the 1980s.

Structural adjustment, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Structural_adjustment

Structural adjustments are the policies implemented by the International Monetary Fund (IMF) and the World Bank (the Bretton Woods Institutions) in developing countries. These policy changes are conditions for getting new loans from the International Monetary Fund (IMF) or World Bank, or for obtaining lower interest rates on existing loans. Conditionalities are implemented to ensure that the money lent will be spent in accordance with the overall goals of the loan. The Structural Adjustment Programs (SAPs) are created with the goal of reducing the borrowing country's fiscal imbalances. The bank from which a borrowing country receives its loan depends upon the type of necessity. The SAPs are supposed to allow the economies of the developing countries to become more market oriented. This then forces them to concentrate more on trade and production so it can boost their economy.[1]

Through conditionalities, Structural Adjustment Programs generally implement "free market" programs and policy. These programs include internal changes (notably privatization and deregulation) as well as external ones, especially the reduction of trade barriers. Countries which fail to enact these programs may be subject to severe fiscal discipline. Critics argue that financial threats to poor countries amount to blackmail; that poor nations have no choice but to comply.

Boosting growth in high-debt times: The role of service deregulation, Guglielmo Barone | Federico Cingano, 6 December 2011, VOXEU, http://www.voxeu.org/index.php?q=node/7389

Many European countries face the challenge of credibly reducing their debt-to-GDP ratios. Boosting output growth is therefore an urgent and key political and economic priority. Given the existing constraints to demand-side measures, most observers see structural (supply-side) reforms as the main policy tool such countries have at their disposal to grow out of their debt problems (e.g. Ivanova et al. 2011, Fernandez-Villaverde and Rubio-Ramirez 2011, Amato et al. 2010). The specific measure they should focus on and the gains to be expected from such reforms are, however, less clear.

Based on recent research on OECD data, this column argues that increasing competition in the market for key upstream service activities in particular, energy and professional services could have sizeable effects on growth by improving the performance of downstream manufacturing industries.

In many countries, key inputs such as professional services, energy, transportation, and telecommunication services are not only scarcely traded internationally, but also sheltered from domestic competition by substantial administrative restrictions, including:

• monetary and non-monetary barriers to market entry;
• the integration of a priori competitive activities with natural monopolies (as in the case of energy); or
• the existence of restrictions to market conduct (as in professional services).

Such restrictions have negative effects on growth in services, in particular because they reduce investments (Alesina et al. 2005). This direct negative effect is only part of the story, however. Combining service-regulation indexes with data on growth in manufacturing industries for a sample of OECD countries, we have shown that there are also sizeable indirect effects, from service regulation to the performance of downstream activities (Barone and Cingano 2011). Interestingly, similar findings are obtained by other works investigating the same issue with different approaches (see Bourls et al. 2010, Arnold et al. 2011).

The room for further service deregulation in Europe seems substantial. According to the OECD indices used in the research in 2008, for example, the number of restrictions in professional services in countries such as Italy and Greece (and Spain and France) was three (and two) times higher, respectively, than in the US and the UK.

Structural transformation and the sophistication of production, Rahul Anand | Saurabh Mishra | Nikola Spatafora, 3 June 2012, VOXEU, http://www.voxeu.org/index.php?q=node/8049

Recent literature emphasises that a key component of the economic growth process is an increase in the “sophistication” of a country’s production. What a country produces and exports matters for growth; indeed, it has been argued that “… not all goods are alike in terms of their consequences for economic performance. Specialising in some products will bring higher growth than specialising in others” (Hausmann et al. 2007; Lall et al. 2005).

This column makes four key contributions to the debate. First, it systematically documents changes in export sophistication over the past 20 years in low-income countries and middle-income countries. In particular, it describes differences in the performance of different geographical regions, as well as between resource–rich and other economies.

Second, it analyses to what extent an increasing sophistication of production and exports is associated with overall economic growth. A related question concerns what factors and mechanisms ultimately determine the magnitude of this impact. That is, what determines whether sophisticated sectors act as an engine of growth for the broader economy, or instead turn into isolated enclaves?

Third, we examine what enables a country to increase the sophistication of its production. In this context, we look at the relative importance of institutional factors, structural reforms, and policy measures (such as exchange rate policy).

Fourth, and perhaps most novel, the analysis moves beyond the usual focus on goods, and also considers services. Services are gradually becoming more productive and tradable, as reflected in success stories such as India’s software and business-process activities, Nigerian’s film industry, or Kenya’s call centres (Mishra et al. 2011). Reflecting this, the paper analyses the transformation of global production using a new measure of the sophistication of services, in addition to the sophistication of goods.

IMF, SPAIN, Financial System Stability Assessment, Prepared by the Monetary and Capital Markets and European Departments Approved by Christopher Towe and Reza Moghadam, May 30, 2012, http://www.imf.org/external/pubs/ft/...12/cr12137.pdf

While there is a core of strong banks that are well-managed and appear resilient to further shocks, vulnerabilities remain. Substantial progress has been made in reforming the former savings banks, and the most vulnerable institutions have either been resolved or are being restructured. Recent measures address the most problematic part of banks’ portfolios (real estate developer loans). Going forward, a further restructuring and recapitalization of some of the remaining weaker banks may be needed as a result of deteriorating economic conditions.

A major and much-needed restructuring of the banking system is underway. Full implementation of the reforms—including thorough independent valuations, a credible backstop, further restructuring of weaker banks, and dealing with legacy assets—as well as an effective communication strategy are critical for preserving financial stability and laying the ground for recovery.

The assessment of the financial oversight framework identifies both strengths and weaknesses. Supervisory agencies have highly experienced and respected professional staff, and are supported by good information systems. However, a gradual approach in taking corrective action has allowed weak banks to continue to operate to the detriment of financial stability. The processes and the accountability framework for effective enforcement and bank resolution powers need to be improved.