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"Strauch, Rolf"
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Fiscal Consolidations: Quality, Economic Conditions, and Success
Recent research has demonstrated the importance of good quality of fiscal adjustments for the success of government budget consolidations. We extend this approach to analyze the importance of the economic conditions in which fiscal consolidations are started for their success. The cyclical positions of the domestic and international economy, the initial debt level and the stance of fiscal policy in the OECD are all important determinants of the likelihood of fiscal consolidations. They also affect the government's choice of consolidation strategy, making them important determinants of the success of fiscal consolidations. In contrast, the monetary policy stance plays only a negligible role for fiscal consolidations. We use the analysis to test for any Maastricht effects on the performance of European governments during the 1990s. Such effects are weak at best and occurred only during the first half of the decade.
Journal Article
Accessing sovereign markets - the recent experiences of Ireland, Portugal, Spain, and Cyprus
A defining feature of the euro crisis, which we experienced over the past few years, is that market access broke down for some countries or was impaired. Some countries could not find sufficient investors to cover their needs or could not do so entirely at a sustainable cost. In the past crisis, this happened to Greece, Ireland, Portugal, Spain, and Cyprus. This discussion paper collects the experiences of several of these euro area countries as they developed strategies to regain access to affordable financial market financing. Euro area governments created a crisis resolution framework that included the European Financial Stability Facility (EFSF), and European Stability Mechanism (ESM), to help countries regain market access. Governments undergo adjustment programmes or undertake measures to repair the banking sector - that is, to \"bring their house in order\" and regain investors' trust. For the programme period, a country's financing gap is covered by the EFSF/ESM. During this period, DMOs managed to keep to different degrees some limited market financing and importantly had to launch a strategy to regain full market access. By now, four of the five countries that underwent an EFSF or ESM programme have successfully exited. The objective of this discussion paper is to document the steps which DMOs in Ireland, Portugal, Spain, and Cyprus took to structure their financing during the programme period, where possible, and the strategy they launched in approaching domestic and international bond markets. Approaches to regaining market access in Ireland, Portugal, and Cyprus show similar phases. It starts with a renewed ramping up of communication and investor contacts, opportunistic issuances and then more broad-based bill and bond issuance. Spain maintained broader market access over the programme period and therefore deviates in this respect. However, interestingly, all countries embarked on some innovation in their investor relations, products or issuance technolo
Paper
Fiscal policy events and interest rate swap spreads: evidence from the EU
In this paper we assess the importance given in capital markets to the credibility of the European fiscal framework. We evaluate to which extent relevant fiscal policy events taking place in the course of 2002 produced a reaction in the long-term bond segment of the capital markets. Firstly, we identify the fiscal policy events and qualitatively assess the views of capital market participants. Secondly, we estimate the impact of these fiscal events on the interest rate swap spreads, which is our measure for the risk premium. According to our results the reaction of swap spreads, where it turned out to be significant, has been mostly around five basis points or less. JEL Classification: C22, G15, H30
Paper
Public debt and long-term interest rates: the case of Germany, Italy and the USA
The debate on the sustainability of public finances is closely related to the analysis of the financial and macroeconomic consequences of government debt accumulation. Focusing on the USA, Germany and Italy over the 1983-2003 period, the central issue addressed in this paper is how the accumulation of government debt affects long-term interest rates, both nationally and across borders. The analysis is based on a small, multivariate econometric model, which allows us to disentangle the more permanent and transitory components of interest rate developments. Empirical evidence shows that in all cases a more sustained debt accumulation leads at least temporarily to higher long-term interest rates. This transitory impact also spills-over into other countries, mainly from the US to the two European countries. JEL Classification: E6, H63
Paper
East Germany: Transition With Unification - Experiments and Experiences
East Germany remains unique among the transition economies. Soon after the fall of the Berlin Wall in 1989, it became part of the Federal Republic of Germany. German Union meant the transplantation of West Germany's legal, administrative and economic infrastructure to the five new Länder. The paper traces the economic changes since 1989 and assesses the convergence between West and East Germany during the last decade. We reach three main conclusions: First, there has been significant convergence in the administrative and economic realm, though persistent differences remain in the level of output and incomes as well as local capacities. Third, the Kohl government's policy towards East German transition, driven by short-term electoral considerations, has focused almost entirely on financing a high standard of consumption and too little on fostering investment and economic restructuring. Third, there is, therefore, a considerable risk that East Germany will remain a transfer-dependent economy for the foreseeable future. However, endogenous institutional change in the labour market, showing its first signs in East Germany, may become important in overcoming the structural problems in the new Länder.
Paper