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Prospects Weekly: Financial market volatility remains sharply elevated

Global Macroeconomics Team's picture

Financial market volatility remains sharply elevated this week as market attention shifted from Greece, to Italy and even France. Concern about counterparty risk kept European banking-sector spreads high, even as banks mark-down and sell-off distressed Euro Area sovereigns to repair their capital base. Continued turbulence and credit tightening could prompt sudden reversals in global capital markets. In 2012, developing country external financing requirements are estimated at $1trn (7.1% of GDP), of which two-thirds is accounted for by short-term debt. Developing Europe and Central Asia, with debts coming due equal to 7.6% of GDP, is the developing region most vulnerable to a tightening of financial conditions. Worries about faltering world demand, led by expectations of recession in Europe, have contributed to deep declines in international commodity prices.

Prospects Daily: European equities rally, while Greek bond yields climb above 100%

Global Macroeconomics Team's picture

Important developments today:

1. European equities rally, while Greek bond yields climb above 100%

2. ECB cuts policy rate by 25 basis points

Prospects Weekly: European heads of state agreed on financial package for Greece today

Global Macroeconomics Team's picture

European heads of state agreed on a €109 bn second financial package for Greece today. About one-third of the financing will be covered by debt swaps or rollovers by private bondholders. Aside from improving the terms of existing multilateral loans, the leaders also agreed to expand the European Financial Stability Facility’s mandate, including authority to buy bonds on the secondary market.

How Advanced Economies Can Tackle Their Debt Woes

Vamsee Kanchi's picture

Given the urgent need for policymakers in Europe and other advanced economies to tackle current debt challenges, there is a frantic scramble for suitable policy tools that will help resolve the Greek conundrum. 

One policy tool – a form of debt restructuring known as ‘financial repression’ that focuses on establishing a tighter relationship between government and the financial industry by setting caps on interest rates and regulating cross-border money flows – has largely been overlooked.  The Petersen Insitute’s Carmen Reinhart recently delivered a

To build or not to build – that is NOT the question

Elina Scheja's picture
Photo: istockphoto.com

Right after the holiday season Greece announced their controversial plan to build a 12 km long wall to stop the flood of illegal immigrants to the EU. The wall will cover only a fraction of the total length of the border and is aimed to be built in the area that is worst affected by illegal border crossings estimated to amount to 350 people every day, making Greece the leading entry point of illegal immigrants to the EU. As provocative as it may sound, in an economy that is suffering from severe difficulties and rampaging unemployment figures, blocking immigrants from entering is becoming one of the priority political actions to moderate fiscal expenses that is visible to the domestic population. Even though opponents have raised loud objections against the project, according to a recent poll 59 percent of the Greeks approved of the plan. And one has to admit it has an intuitive appeal of simplicity and logic: once you close the drain the flow will stop. Yet, as simple as it may sound, this is not how it works.
 


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