Dealing with (Current Account) Deficits

Explaining the Consequences of European Financial and Monetary Integration in Italy and Spain

By
Salita
Dealing with (Current Account) Deficits : Explaining the Consequences of European Financial and Monetary Integration in Italy and Spain - Elena Pravettoni

Abstract

This paper focuses on the consequences of financial liberalisation and monetary integration on the two largest economies of Southern Europe, Italy and Spain. As part of the European project of financial liberalisation that was pushed forward with the 1992 agenda and the introduction of the single currency in 1999, these economies found themselves facing new challenges in economic policy-making. Given the dismal economic performance in recent years of the so-called Southern ‘periphery’ unveiled by the financial crisis in 2008, the aim of this case study is to understand why the benefits of liberalised financial systems and monetary union did not fully materialise. By showing how European financial and monetary integration provoked large-scale capital inflows, which led to distortions that were difficult for policymakers to control in Italy and Spain, the paper challenges the dominant narrative that the profligacy of Southern governments was simply to blame for the crisis.

Introduction

This paper focuses on the consequences of financial liberalisation and monetary integration on the two largest economies of Southern Europe, Italy and Spain. As part of the project of financial liberalisation that was pushed forward with the 1992 agenda and the introduction of the single currency in 1999, these economies found themselves facing new challenges in economic policy-making. Given the dismal economic performance in recent years of the so-called Southern ‘periphery’ unveiled by the financial crisis in 2008, the aim of this paper is to understand why the benefits of liberalised financial systems and monetary union did not fully materialise. Clearly, the story is not the same for the entire Southern European region; therefore, the paper will adopt a comparative approach drawing on the experiences of Italy and Spain.

The interest of this retrospective analysis is to account for the current malaise of the European periphery, and to dig deeper into the widespread notion that its troubles are merely due to fiscal mismanagement by government authorities. Were all peripheral countries simply profligate and living beyond their means, or is there something greater at hand? Was it a question of misguided policy and political choices or structural mechanisms and the constraints of the euro? The sovereign debt crisis exposed large macroeconomic imbalances between the Eurozone core and periphery - which had built up increasingly since the launch of the euro. This empirical reality merits that a closer look be taken at the consequences of greater capital market liberalisation and monetary union. The forces that have shaped Europe since monetary union may be larger than the simple narrative of ‘Southern sinners’ and ‘Northern saviours’ accounts for.

The paper adopts a comparative methodology, drawing on both economic and political science literature. The structure will follow three parts. Firstly, the impact of further European integration - both in terms of financial liberalisation and monetary union - on macroeconomic (im)balances will be considered, with a focus on the Southern peripheral member states. Secondly, the paper will look at the causes for why these countries were unable to absorb the capital inflows in a productive way. Particular attention will be given to the role of banks and the financial system, but the wider political economy will also be discussed. Finally, based on the findings of the previous section, the case study will draw out implications for the European integration project and for policy-making under a liberalised regime more generally.

Financial Liberalisation and Monetary Integration: A New Regime for the Southern Periphery

The project of European economic integration is premised on the creation of a larger, unified market at the continent-level, removing barriers to trade in order to achieve an efficient allocation of resources and make significant economic welfare gains.[1] This logic was the cornerstone of the European Single Market project presented by Lord Cockfield’s White Paper in 1985. Financial market liberalisation can be seen as a piece of this agenda. The integration of financial systems across Europe was necessary to build a complete market and fully guarantee one of the four ‘freedoms’, the free movement of capital, across the European Community. The importance of financial integration therefore reposed on a strict ‘market-making’ logic based on the efficient market hypothesis, where larger, liquid financial markets would be able to more effectively allocate capital between borrowers and lenders across Europe, through economies of scale and lower cost of capital.[2]

Through greater cross-border flows, capital market liberalisation offered European countries more flexibility. Economic theory explains that an economy is able to borrow or lend across two periods in order to smooth consumption, leading to an optimal result as expressed by the Euler equation.[3] This has the advantage of giving the “ability to intertemporally reallocate consumption and investment”.[4] These benefits accrue even more significantly within an environment of financial market liberalisation, with deeper and more liquid markets for borrowing and lending. As borrowing constraints are relaxed, capital flows across borders increase. As Erik Jones argues, the liberalisation of capital movements created new opportunities for member states, which could now take advantage of the relaxed current account constraints to be able to follow an economic model of preference.[5] That is, countries such as Belgium and the Netherlands wishing to follow an export-led growth model found it easier to run a current account surplus, being able to lend savings abroad. Countries like Greece and Portugal, on the other hand, could run a current account deficit and continue to pursue a demand-led strategy.

The benefits behind deeper European integration thus seemed clear. Nevertheless, greater access to international capital and flexibility in macroeconomic policy choice did come with a set of constraints, most clearly in terms of volatility. In fact, opening up capital controls left countries vulnerable to sudden capital flight, and exposed them to significant potential losses through exchange rate risk. It was in this context that monetary union became seen as a response to the new environment. Without a doubt, the forces behind the creation of Economic and Monetary Union (EMU) are multi-layered and complex; however, it is compelling to see monetary integration as a way to significantly reduce the volatility from financial liberalisation, which also was a barrier to cross-border investment. Through the creation of the single currency, volatility and its associated negative externalities were in large part mitigated, albeit with the renunciation of an autonomous monetary and exchange rate policy by delegating authority to the supranational European Central Bank (ECB). Exchange rate risk was wiped out, the spectre of speculative currency attacks receded, and a common monetary policy was instituted, paving the way for an ever-closer convergence of interest rates. EMU was thus a response designed to optimise conditions subject to the constraints of financial liberalisation.

From the perspective of Southern Europe, greater financial integration coupled with monetary union offered immense opportunities to access capital markets. These opportunities came both from greater penetration of international capital into the periphery given higher rates of return and from lower interest rates. Interest rates started to converge in Europe even before monetary union (highlighting the role of financial liberalisation as the key driver of these processes) [See Figure 1]. However, after the launch of the euro, interest rates witnessed further convergence. Interestingly, the rates fell to the low levels that Germany was facing, and not a midway point. This convergence, which included a reduction of the spread on bond yields, gave rise to a windfall gain from greatly reduced interest payments on debts for both governments and private agents in the periphery. Stable access to bond markets increased the autonomy of peripheral policy-makers by easing financing constraints. The decline of interest rates for Southern member states had potential for beneficial effects in terms of lower saving (more consumption) and higher investment.[6] Higher returns on investment also meant that the periphery was particularly attractive for capital from Europe’s core, which channelled excess savings to higher returns.

Figure 1: Interest Rate Convergence

The increased movement of capital sparked by monetary union and the reduction of volatility exacerbated the macroeconomic imbalances that existed in Europe. These significant capital inflows into Southern Europe meant that countries such as Greece, Portugal, Spain, Ireland and Italy started accumulating large current account deficits, which mirror capital account surpluses in the balance of payments accounts. Early on, however, the peripheral current account deficits were not seen as a source of worry.[7] In the less developed periphery, in fact, capital is more scarce, therefore in an integrated environment, economic theory predicts capital account surpluses. The intertemporal explanation of the current account states that these surpluses - the capital borrowed in period 1 - should flow to productive investments, which can service debt repayment in period 2. Economic literature highlights how capital inflows help the process of real economic convergence by allowing capital from abroad to finance domestic investment in industry. Moreover, it has been shown that these deficits did not, in large part, eat away at the export shares of the country.[8]

Therefore, the situation seemed rosy for Southern European member states. Although they no longer had direct control over monetary policy, they gained in terms of autonomy from the bond markets, flexibility in the current account, and also from each other, for example no longer having to maintain exchange rate parities and handling foreign reserves and the risks associated to it. Of course, this situation was not without its own risks. Here, it is important to emphasise the new issues in macroeconomic policy-making that came into play after the creation of the euro. In fact, given the rigidities of monetary union, notably the lack of control over the setting of interest rates and competitive devaluations, countries had to converge and remain competitive in order to counter rising imbalances. In other words, inflation (and wages) had to converge in order to remain competitive vis-à-vis other members. Given the framework of monetary union, structural adjustment became the only way to deal with differentials in competitiveness. In theory, however, this also provided an opportunity, offering the political guidance in which to implement structural reforms necessary to boost productivity. Moreover, the moral hazard stemming from current account flexibility meant that rules (specifically, the Stability and Growth Pact and the Excessive Deficit Procedure) were put into place to limit budget deficit and public debt, in order to try and limit future adjustment burdens.

A decade after the introduction of the single currency, however, the financial and sovereign debt crises from 2008 revealed the problematic aspects of the new regime, hitting the Southern periphery particularly hard. The change in economic conditions - produced by the onset of the financial crisis in the US in 2008 - meant that real estate bubbles were exposed in Spain and Ireland. House prices fell dramatically, meaning that many were not able to pay back loans or mortgages as the value of their assets collapsed, and putting Spanish and Irish financial institutions into trouble. Public intervention was necessary to support banks, putting strain on public finances. This became problematic when the liquidity crisis that emerged out of the sub-prime mortgage crisis in the US sparked a “flight to quality” for investors, who poured money into risk-free German bunds. The spread on yields between peripheral and German bonds increased [See Figure 2]. The real problem started when the true size of Greek debt was exposed. This triggered an even larger retreat of capital from Europe’s periphery, at a time when many countries, such as Spain, had been accumulating sovereign debt from bailing out faltering domestic banks that had suffered from the end out the housing bubble. It was this phase of the crisis that also hurt Italy the most. Italy’s public debt had always hovered around 120% of GDP since joining the euro, and although banks had expanded their balance sheets, this was not to the extent of Spain. Italy also escaped a housing bubble. However, now facing higher interest rates, Italy too found itself in a dire situation, with greatly increased financing costs and difficulty to rollover its debt. In particular, the drying-up of international capital was a huge problem for the periphery as these countries found themselves uncompetitive vis-à-vis the core of the eurozone. In most of the periphery, especially Italy, wages had diverged from productivity, and in Spain, real estate investment had crowded out more productive investments. Without the possibility of competitive devaluation, these economies seemed to be destined to immediate structural reform - adjustment through prices/wages - in the worst moment possible. The adjustment burden was immense.

Figure 2: Widening Spreads

The problems of the Southern periphery that surfaced with the crisis demonstrate that these countries had trouble dealing with the new regime of financial liberalisation and monetary union. The housing bubble and persistent high debt levels had plagued Spain and Italy respectively. While the crisis did include destabilising “hot flows” of money that had little regard for economic fundamentals and were driven by the herd mentality of the market, the fundamental lack of competitiveness of the Italian and Spanish economies exacerbated these patterns. The crisis revealed the periphery’s dependency on capital imports to finance its current account deficits, and the lack of productive investments over a period of favourably low interest rates. The next section will turn to examine why Spain and Italy did not benefit fully from the capital inflows and therefore from the process of financial liberalisation and monetary integration more generally.

Understanding the Impact of Capital Inflows: Structure and Institutions

This section identifies two ways to explain why the Southern periphery ultimately proved unable to take advantage of financial and monetary integration. Firstly, it argues from a structural perspective that the large magnitude of inflows into these countries made an efficient allocation of capital very difficult, and greatly facilitated the creation of asset bubbles. The expansionary policy pursued by the ECB, the regulatory framework for banks and undervalued risk premia all fostered massive expansion of banks’ balance sheets. In turn, this gave rise to moral hazard and signal extraction problems that led to further deterioration of the economic systems. However, the story is not purely a structural one. This is highlighted by the divergent experiences of Italy and Spain, as the former did not witness a housing bubble in contrast to the latter. Therefore, the second part of this section will look at how institutions impacted the management of capital inflows, arguing that in both Italy and Spain, institutions limited opportunities to fully benefit from capital inflows. This leads to the proposition that the ‘varieties of capitalism’ of these countries might not have been well prepared for the challenges of monetary and financial integration.

As the previous section has shown, liberalised financial systems and lower interest rates meant that capital was now more easily available to Italian and Spanish banks, as well as governments. The Spanish government, however, followed a prudent fiscal policy, as recommended by the European Commission. The government did not largely expand its balance sheet, and in fact remained within the maximum 3% budget deficit rule for nine consecutive years after the creation of the euro. Likewise, the Italian government did not take on significantly more debt, having already accumulated a high level since the 1980s. Therefore, the focus in looking at Italy and Spain should be on the private sector - in other words, how and why banks started to lend more.

In their assessment of global capital flows, Noeth and Sengupta point to three factors which led to a lending boom in the early 2000s, which they define as ‘global banking glut’. In particular, they point to studies by Shin and Bruno which show that three factors pushed European banks to lend more: “(i) easy monetary policy that lowers funding costs for banks, (ii) adoption of a regulatory structure that allows higher leverage, and (iii) an asset price boom and real appreciation of the currency that strengthens the balance sheet position of borrowers.”[9]These three factors contributed to increased capital inflows into the periphery, allowing European banks, whose access to international borrowing had become much easier, to expand balance sheets even more and towards riskier assets.

Firstly, there is the issue of accommodating monetary policy. In fact, throughout the first years of its existence, the ECB pursued a policy of low interest rates. Although this could be explained in various ways, more generally the policy was accommodating due to the aggregate approach in monetary policy-making.[10] As the core economies found themselves in a period of moderate growth, the ECB kept interest rates at a level lower than what would have been necessary for the higher-growth rates of the peripheral countries (it is important to note here that Italy never witnessed the growth rates of the other peripheral countries in the 2000s) [See Figure 3]. Low interest rates encouraged households to take on more debt and stimulated consumption, which had an inflationary effect. By creating more (artificial) demand through lower-than-necessary interest rates, prices start to rise rapidly. This was where bubbles began. Secondly, the structure of regulatory frameworks for European banks encouraged an expansion of balance sheets. This was due to the introduction of risk-weighted capital ratios, in line with the Basel-II philosophy that was also present in the EU’s Capital Adequacy Directive. So long as the banks acquired low-risk assets, they could “report strong capital ratios under the Basel II risk-weighted framework”, and therefore continue to expand leverage.[11] What triggered the massive accumulation of assets by banks were these regulations that emerged in conjunction to a widespread reduction in risk premia on many peripheral European assets. Two elements contributed to the decline in risk: the inflationary effect and effects of the appreciated exchange rate for the periphery - which raised asset prices and therefore made household balance sheets appear stronger - and the introduction of the euro, which eliminated exchange rate risk. The effect therefore was to increase lending due to the perception of stronger loan portfolios.

Figure 3: Different Growth Rates in the Eurozone

These factors indicate two important consequences: the immense magnitude of the capital inflows, and the increased riskiness of bank lending. Incentives were in place to direct a large inflow of foreign capital into the periphery. Partly, these effects were due to ECB policy and to regulatory structures. However, the situation also presents a case of market failure, as markets failed to take into account the true risk. In fact, not all loans were really risk-free; as banks’ balance sheets began to widen, risk spreads should also have widened. As Lipschitz, Lane and Mourmouras explain, risk premia should act as a mechanism to help the market price assets properly.[12] However, the reality often does not correspond to the theory. In the 2000s in Europe, the single currency effectively acted as a shield to volatility, dampening real risk-weighted returns. As the authors state, “exchange rate guarantees…may exacerbate discontinuities in the pricing of risk”.[13] This mispricing meant that the inflow to the periphery was larger than it should have been, and too large for the economies to absorb properly. Instead of helping real economic convergence, given their magnitude, the capital inflows generated adverse effects.

Structurally, it appears extremely hard to channel such a large inflow of capital to productive sources. The boom from capital inflows creates a situation of price-stickiness and information asymmetry which requires counter-cyclical monetary and fiscal policy. In the absence of contractionary monetary policy, Fagan and Gaspar argue that tight fiscal policy is necessary to smooth the consumption pattern over a long period of time and avoid the problems generated by the shock of interest rate decline, which are excessive debt and consumption.[14] The problem with fiscal policy as an adjustment tool is that the implementation time is often too narrow, and furthermore, that it is often politically difficult.[15] But on the other hand, the relaxation of borrowing constraints and the lack of credibility of the SGP meant that the incentive for countries to reform was greatly reduced - a problem of moral hazard. This became a problem in both Italy and Spain, where the governments of the early 2000s failed to negotiate important reforms in education and labour markets.

Instead, the post-euro financial boom acted as a type of “resource curse”, with cheap credit as the resource. The effect of credit “oversupply” was that capital was not ’’rationed out’’ to the most productive source. Instead, Aizenman and Jinjarak show that large current account deficits often result in real estate bubbles.[16] With a lower cost of borrowing families faced much lower mortgage rates. As a result, it is estimated that after the euro, Italians invested around 336 billion in real estate.[17] In Spain, where around 80% of family wealth is invested in real estate, the effect was even larger, with a younger demographic curve and more availability of land creating more even higher demand for housing - all factors which fed into the bubble.[18] Capital inflows effectively had a “reallocation effect: relative price changes [lower interest rates] shift the allocation of capital - physical and human - toward activities such as construction investment and away from the production of tradable goods.”[19] Furthermore, Fernandez-Villaverde, Garicano and Santos argue that the effects of the boom, notably in terms of the seemingly profitable activities of banks given lower interest rates, rising prices and constant profits, meant that accountability was lost. It became harder to identify the bad ‘agents’, such as poorly performing managers in banks. This ‘’signal extraction problem’’ resulted in a lack of selection that propagated the negative implications of the credit bubble by continuing to channel credit to the wrong sources.[20]

Therefore, structural constraints help to explain the problems that developed in the peripheral economies. However, the vision presented so far is rather deterministic, and the reasons why the capital inflows turned out to be problematic for Italy and Spain are not only structural. Institutions also had an impact. In fact, the ‘varieties of capitalism’ existing in Italy and Spain were not particularly well placed to take advantage of capital inflows. As we have seen, capital inflows generate inflationary effects. To remain competitive, it is important to contain these effects and keep wages in line with productivity. However, a major problem was that national wage-setting institutions in peripheral economies were not inclined to control inflation through domestic means, and therefore they were unable to control wages [See Figure 4]. Peter A. Hall argues that unlike Germany, “they lack the capacities for…wage coordination central to northern European economic strategies”.[21] Wage increases had been adjusted through devaluations. It was difficult for peripheral countries to adjust to a new model “in the face of strong producer groups defending vested interests”.[22] As Lipschitz, Lane and Mourmouras explain, to hold inflation down and ensure convergence in the context of financial liberalisation economies must usually be “highly open, with substantial intersectoral wage flexibility and labour mobility, relatively complete adjustment and a strong fiscal position that allows a degree of fiscal activism”.[23] Although movement towards this had happened in peripheral economies in the process leading up to the launch of the single currency, the domestic interest groups who defended this lost their cohesion after the arrival of the euro, and reform efforts stalled.

Figure 4: Divergences in Wage Growth

Moreover, the financial systems of the peripheral countries also proved too weak to handle the scale of capital inflows. Embedded traditions in the financial system meant that liberalisation did not have the effects desired. In this sense, Spain and Italy present two divergent paths, which also shed light on why a housing bubble developed in the former and not the latter. The important variable is the institutional framework of the domestic banking system. The ’’varieties of capitalism’’ literature traditionally draws a distinction between market-based and intermediated financial systems. The United Kingdom is an example of the former, where companies finance themselves more frequently directly on the market through equity and debt instruments. On the other hand, Germany is the standard case of an intermediated system, where banks play a crucial role in corporate finance. The former model is often cited as being more efficient, while the German model wins in terms of stability.[24] In the early 1990s, Italy and Spain both presented characteristics more similar to Germany, with a more conservative, territorially based banking system. Through the process of financial liberalisation in Europe, however, the market-based model was preferred and promoted, especially in Spain. Cross-border financial activity reduced the importance of the affiliation between the banks and the home territory, and led to numerous mergers and acquisitions. The cajas, or saving banks, went from being small regional players to larger entities. In Italy, a similar trend happened, which reinforced core-periphery divisions within the country as the number of bank headquarters in the South was reduced from fifty to eight.[25]

This reconfiguration of the financial systems, however, was not always positive. In Spain the cajas, historically linked to charitable institutions, were essentially not-for-profit entities that had a long tradition of being active for local development, where politicians also played a role.[26] The process of liberalisation changed this entirely; the cajas expanded beyond their territory, and started engaging in more sophisticated practices. Moreover, the expansion of cheap credit allowed even their balance sheets to expand massively.  These institutions were effectively unprepared to deal with the new regime and capital inflows, and proved to be the weak link that contributed in large part to the Spanish financial crisis. The involvement of politicians meant that often, technical expertise was lacking and close relations with the construction sector meant that more credit was given that should have been. Institutions embedded within the national model of capitalism were unable to successfully morph and adapt to the new regime.

In Italy, the situation was different as the conservative aspect of the banking system was largely maintained. Lucia Quaglia uses Giulio Tremonti’s expression to characterise the Italian financial system as one that “does not speak English”.[27] In fact, Quaglia shows that the “traditional unsophisticated configuration of financial activities in Italy, which are mainly bank-based and are characterised by a relatively low level of leverage, a large and stable base of depositors, and low exposure to risky activities” was kept, and often purposely defended by the Italian central bank and other institutions close to it.[28] This Italian model of financial capitalism proved resilient to the crisis, as “no bank has failed or had to be rescued by the public authorities in 2008”.[29] Therefore, if Spain got into trouble because of the incompatibility of financial liberalisation and its embedded institutions, the case of Italy shows that the Italian model was perhaps unable to reap the full benefits in terms of efficiency as promised by a more liberalised system. Nevertheless, the outcomes and the crisis demand a rethinking of the efficiency-stability trade-off.

Conclusion

The paper has led to two main findings. Firstly, it has shown that financial liberalization and monetary union allowed current account imbalances in Europe to become more pronounced. This allowed the export-led German economy to run a large current account surplus, and the demand-led economies of the ‘periphery’ to increase their current account deficits. It changed the economic environment that countries were used to operating in. For the periphery, this meant much lower interest rates and increasing capital flows. It also subjected these economies to more pronounced market forces through the eventual retreat of capital. Secondly, the paper has shown that the inability to effectively deal with this new environment that meant that the economic performance of Italy and Spain proved unsatisfactory. This inability stemmed both from structural and institutional factors. The magnitude of capital flows and associated mechanisms of market failure and distortions made proper economic management very difficult. However, reasons can also be traced to specific institutions embedded within the ’’varieties of capitalism’’ existing in these countries. By showing how European financial and monetary integration provoked large-scale capital inflows, which in turn led to distortions that were difficult for policymakers to control in Italy and Spain, the paper challenges the dominant narrative that the profligacy of Southern governments was simply to blame for the crisis.

These conclusions raise interesting questions and implications for policy-makers. Firstly, the importance of ‘varieties of capitalism’ in the analysis shows that policy is not conducted in a vacuum, and potential benefits must be weighed realistically against institutional capacity. Financial and monetary integration necessitated reform in the peripheral countries given the constraints of the new regime. However, the Southern European economies possessed institutions too weak to support these reforms. This suggests the need for prior economic convergence before entering into such an agreement, or a different policy that takes into account institutional limitations. Moreover, it could suggest the necessity for ‘positive’ as well as ‘negative’ integration in the European context, with a broader role for regional policy and coordination around the European Employment Strategy, for example.

Secondly, the structural reasons behind the story of Southern Europe’s woes suggest the wider implications of the issue. The liberalisation of financial markets as the root cause of macroeconomic imbalances means that this matter is important outside of monetary unions too, and that it can provide important lessons especially for emerging economies. Abolishing capital controls and liberalising the domestic financial system can bring benefits, but also new risks, as current account deficits can hide big problems. The European experience has demonstrated that instances of market failure could present a case for more government intervention in making sure capital is channeled to productive use. Measures to encourage foreign direct investment as opposed to short-term flows, and to prevent the erosion of savings and excessive investment in real estate could be useful policy tools. A strong macro-prudential regulatory framework is key. Therefore, complete liberalisation without prior preparation is dangerous, and means painful adjustment in the future.

Notes & References

  1. European Commission (1988) Europe 1992: The Overall Challenge (summary of the Cecchini Report) SEC (88) 524
  2. Grahl, John (1997). After Maastricht: A Guide to European Monetary Union. London: Lawrence and Wishart, Chapter 9
  3. Obstfeld, Maurice and Rogoff, Kenneth (1999), Foundations of International Macroeconomics, MIT Press, Chapter 1
  4. Blanchard, Olivier & Giavazzi, Francesco (2002) ‘Current Account Deficits in the Euro Area: The End of the Feldstein-Horioka Puzzle?,’ Brookings Papers on Economic Activity, p.43
  5. Jones, Erik (2003) ‘Liberalized Capital Markets, State Autonomy and European Monetary Union,’ European Journal of Political Research 42, pp. 197-222.
  6. Blanchard, Olivier & Giavazzi, Francesco (2002) p. 39
  7. Blanchard, Olivier & Giavazzi, Francesco (2002)
  8. Jones, Erik (2009) ‘Italy and the Euro in the Global Economic Crisis’, The International Spectator, Vol. 44, No. 4, p.93–103
  9. Noeth, Bryan and Sengupta, Rajdeep (2012). ‘Global European Banks and the Financial Crisis’, Federal Reserve Bank of St. Louis Review, 94(6), pp. 463
  10. See: Talani, L., (2013), European Political Economy: Political Science Perspectives, London: Ashgate
  11. Noeth, Bryan and Sengupta, Rajdeep (2012); p.465
  12. Lipschitz, Leslie, Lane, Timonthy, Mourmouras, Alex (2005)’ Real Convergence, Capital Flows, and Monetary Policy: Notes on the European Transition Countries’, in Euro Adoption in Central and Eastern Europe: Opportunities and Challenges, IMF (ed. Susan Schadler), p.66
  13. Lipschitz, Leslie, Lane, Timonthy, Mourmouras, Alex (2005); p.67
  14. Fagan, Gabriel & Gaspar, Vitor (2006) ‘Adjusting to the Euro,’ CRIF Seminar Series Paper 1
  15. Lipschitz, Leslie, Lane, Timonthy, Mourmouras, Alex (2002), ‘Capital Flows to Transition Economies: Master or Servant?”, IMF Working Paper No 02/11; p. 15
  16. Aizenman, Joshua, Jinjarak, Yothin (2009), ‘Current account patterns and national real estate markets’, Journal of Urban Economics, Volume 66, Issue 2, p. 75–89
  17. Cazzola, Giuliano (2012), ‘Il cambio lira-euro fu malfatto ma la moneta unica ha dato molto all'Italia’, L’Occidentale, Web. 14 Mar. 2014
  18. Fernández-Villaverde, Jesús, Garicano Luis, Santos, Tano (2013) ‘Political Credit Cycles: The Case of the Euro Zone,’ NBER Working Papers 18899, National Bureau of Economic Research; p. 12
  19. Fernández-Villaverde, Jesús, Garicano Luis, Santos, Tano (2013) p.10
  20. Fernández-Villaverde, Jesús, Garicano Luis, Santos, Tano (2013)
  21. Hall, Peter A. (2013) "Anatomy of the Euro Crisis." Harvard Magazine, Web. 14 Mar. 2014 (http://harvardmagazine.com/2013/07/anatomy-of-the-euro-crisis)
  22. Hall, Peter A. (2013)
  23. Lipschitz, Leslie, Lane, Timonthy, Mourmouras, Alex (2005); p.67
  24. Grahl, John (1997); Chapter 9
  25. Darby, Julia, Hübner, Danuta, Montagnoli, Alberto, Rodríguez-Pose, Andrés, (29/01/14) ‘Insurance and Adjustment in a Diverse Monetary Union: what can the Eurozone learn from the UK?’, Public Lecture, European Institute, London School of Economics
  26. Cardenas, Amalia (2013), ‘The Spanish Savings Bank Crisis: History, Causes and Responses’, IN3 Working Paper Series
  27. Quaglia, Lucia (2009), ‘The Response to the Global Financial Turmoil in Italy: ‘A Financial System that ‘Does Not Speak English’’, South European Society and Politics, Vol. 14, No. 1, March 2009, pp. 7
  28. Quaglia, Lucia (2009); p. 8
  29. Quaglia, Lucia (2009); p. 16-17