Welcome to my Weblog. I am a Professor of Economics, author of "Understanding the New Global Economy. A European Perspective", and an occasional blogger on global and European economic issues.
Bottom line: The Eurozone crisis has fundamentally and persistently disrupted the Eurozone banking network beyond the crisis period.
Abstract: Banking market integration is essential for a stable European Monetary Union but was severely disrupted during the Eurozone crisis. With heterogeneous national banking markets, interpreting the recent post-crisis convergence of national interest rates as restored integration has been challenged in the literature. We therefore scrutinize integration under the condition of market heterogeneity for 12 Eurozone countries before, during and after the Eurozone crisis from 2003 to 2019, employing a novel combination of state-of-the-art network analyses and estimates of bilateral interest rate linkages. We measure integration as bi-directional (Granger) causality relations between lending rates or margins in order to identify crisis-resilient arbitrage mechanisms. Their extent, disruption and restoration inform our subsequent network analysis, which unveils that the Eurozone crisis has fundamentally and persistently disrupted this network beyond the crisis period even when interest rates and margins are converging. Our approach complements and extends existing integration analyses by revealing policy-relevant but otherwise undetected disintegration.
Peter Coy, an econ columnist of the New York Times has talked to several leading economists on the state of globalization and concludes “Globalization isn’t over. It’s changing”. In a similar vein, and against the backdrop of Russia’s invasion of Ukraine, Steven Altman and Caroline Bastion in their report on “The state of globalization in 2022” for the Harvard Business Review posit “the war will likely reduce many types of international business activity and cause some shifts in their geography, but it will not lead to a collapse of international flows.”
The changing character of globalization, is the major thread running through my book “Understanding the New Global Economy. A European Perspective”. In this entry, I summarize my take on a premature diagnosed end of globalization (see also the “Introduction”of my book, available as an open access preview on the book’s website), link to new analyses and comment on the changing New Global Economy, and make a short reference to US Secretary of the Treasury, Janet Yellen’s “friend-shoring” idea. Read full entry here…
Happy to announce my new book, published with Routledge. From the publisher’s website:
“Understanding the New Global Economy: A European Perspective argues that globalisation is facing economic and political headwinds. A new global economic geography is emerging, cross-border relationships are changing, and global governance structures must come to terms with a new multipolar world.
This text is an accessible guide to the contemporary world economy, suited to students of international economics, political economy, globalisation, and European studies. It will also be valuable reading for researchers, professionals, and general readers interested in economics, politics, and civil society.”
My editorial (jointly written with Joscha Beckmann and Stefanie Kleimeier) presents the papers in a broader context, highlighting “the importance of bringing the finance and macroeconomic literature closer together in order to gain deeper insights into to effects of financial spillovers.”
You can open access the editorial until April 28, 2020 using this LINK.
In this paper “we examine the impact of the existence on an explicit deposit insurance (DI) scheme and its design features on bilateral cross‐border deposits (CBD) in a gravity model setting. We find that both the absolute quality of a country’s DI and its relative quality vis‐à‐vis other countries’ DI generally affect depositor behavior. However, during systemic banking crises, cross‐border depositors primarily seek countries with the best DI schemes. Similarly, during the 2008–2009 great financial crisis, the emergency actions taken by the governments, which supply and maintain these safe havens, have led to substantial relocations of CBD.”
Deposit insurance systems are a common feature of the financial systems of most countries. Their rationale is twofold: to protect bank depositors in case of a bankruptcy and, even more importantly, to avoid widespread bankruptcies as a consequence of bank runs in the first place. However, in times of globally mobile capital, customers might look for safe(r) havens for their deposits abroad, especially when countries are experiencing a financial crisis. This can lead to a global competition for providing the best safety and, hence, destabilize the financial system of a crisis country even further. In a new policy paper, published inIfo’s DICE Report, written jointly with Stefanie Kleimeier, Shusen Qi and myself review our recent research (forthcoming in Economic Inquiry) and argue that there is a strong case for global and regional coordination. Our research therefore also lends support for establishing a common European Deposit Insurance System (EDIS) to make the Euro area more resilient to future crises.
On 18 February 2019 I participated in a panel discussion on “The Future of Global Trade“, organized by SCOPE and Studium General of Maastricht University. It was insightful for me to debate controversial current trade (policy) issues with a panel of experts from different areas of expertise. Moreover, it was good to see so many young people in the audience, participating actively.
Banking Competition and Interest Rate Pass-Through (with S. Kleimeier), in: Bikker, J.A. and L. Spierdijk (eds), Handbook of Competition in Banking and Finance, Cheltenham (Edgar Elgar), 2017: 305-322.
In my Jean Monnet keynote lecture on the International Conference on Banking and Finance at the University of Warsaw on 10 July 2017, entitled “Whatever it takes: Retail Banking Market Integration and Financial Stability in the Eurozone”, I have highlighted the role of retail banking market integration for turning a still incomplete European Monetary Union into a more stable currency union.
The main message of the lecture is that retail banking market integration goes some way to provide more urgently needed risk sharing in the Eurozone, yet this might not be enough for two major reasons. First, the Banking Union is still incomplete. In particular, a single European fiscal backstop for the single resolution mechanism and the still lacking European deposit insurance is required. Secondly, given the empirical evidence on the reluctance of retail banking markets to integrate, additional public risk sharing is needed. Ultimately some fiscal solidarity in the Eurozone is necessary to make the monetary union sustainable.
Harald Sander's Weblog 