{"id":362923,"date":"2010-02-25T12:26:37","date_gmt":"2010-02-25T17:26:37","guid":{"rendered":"http:\/\/blogs.wsj.com\/economics\/2010\/02\/25\/ecb-paper-little-basis-for-euro-zone-solidarity-when-sovereign-risks-rise\/"},"modified":"2010-02-25T12:26:37","modified_gmt":"2010-02-25T17:26:37","slug":"ecb-paper-little-basis-for-euro-zone-%e2%80%98solidarity%e2%80%99-when-sovereign-risks-rise","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/362923","title":{"rendered":"ECB Paper: Little Basis for Euro Zone \u2018Solidarity\u2019 When Sovereign Risks Rise"},"content":{"rendered":"

European Central Bank<\/strong> staffers conclude that market-based valuation of sovereign risk is a \u0093valid\u0094 way to discipline fiscal policy \u0093especially but not only in times of crisis.\u0094<\/p>\n

The implication, a trio of economists write, is that there\u0092s \u0093little justification for the claim that governments faced with high risk premiums during the crisis deserve the solidarity of other governments in the euro area.\u0094 Two of the authors — Ludger Schuknecht<\/strong> and Guido Wolswijk<\/strong>– are from the ECB. The third, Juergen von Hagen<\/strong>, is from University of Bonn<\/strong>.<\/p>\n

The timing of the paper, posted on the ECB\u0092s Web site this week<\/a>, is noteworthy amid debate over how European governments might craft an assistance package to Greece to help that country deal with its fiscal crisis. A key message is that governments need to have even sounder fiscal policies during expansions to avoid the costs of borrowing during crises. Greece has been criticized for not doing enough to reform its economy and finances last decade when its economy grew above the euro zone\u0092s average.<\/p>\n

The authors conclude that bond yield spreads over U.S. and German benchmarks \u0093can still largely be explained on the basis of economic principles during the crisis.\u0094 In addition, financial markets \u0093penalize fiscal imbalances much more strongly since the Lehman default in September 2008.\u0094<\/p>\n

Whereas before Lehman Brothers <\/strong>an additional percent of deficit over Germany\u0092s resulted in a 3.5 basis point widening in yield spread, after Lehman the spread effect ballooned to 12.6 basis points, the authors estimate.<\/p>\n

\u0093The crisis thus seems to have caused a significant change in the markets\u0092 assessment of the governments\u0092 fiscal performance and the cost of profligate fiscal behavior has increased considerably,\u0094 they wrote.<\/p>\n

\u0093For Greece, Ireland and Portugal\u0085relatively weak fiscal performance explains almost or more than half of the increase in the spreads during the crisis,\u0094 the economists write.<\/p>\n

<\/img><\/a>
\n<\/img><\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

European Central Bank staffers conclude that market-based valuation of sovereign risk is a \u0093valid\u0094 way to discipline fiscal policy \u0093especially but not only in times of crisis.\u0094 The implication, a trio of economists write, is that there\u0092s \u0093little justification for the claim that governments faced with high risk premiums during the crisis deserve the solidarity […]<\/p>\n","protected":false},"author":850,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-362923","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/362923","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/850"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=362923"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/362923\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=362923"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=362923"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=362923"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}