samchain/econo-pairs-v1 huggingface dataset:
More encouraging is the principle of better late than never, and the important thing is that Spain initiated the process of bank restructuring, now nearing completion, in 2009, that significant measures to reduce the budget deficit began to be adopted in May 2010 and that an ambitious labour-market reform was introduced in February this year. Spain has proven itself capable of making adjustments and reforms and this is essential to restore long-lasting upswings and sustainable growth. But this reassurance must not lead to complacency. What we have done so far, despite its huge importance, is not sufficient. And some of us have the thankless task of pointing this out. For example, when each financial reform has been approved it has always been argued that the result will be more credit, but although bank restructuring is certainly an absolutely necessary condition, we have always seen that it is not sufficient by itself to make credit flow again. We have to restructure the financial system so that, as in any process of industrial adjustment, the resulting banks can generate a healthy profit and be sufficiently solid to meet demand when the adjustment process is complete. However, credit will not improve until solvent demand increases. Hence the importance of other economic reforms to boost consumer and investor confidence, such as reducing the budget deficit and reforms, such as the labour-market one, to increase the economy’s growth potential.

Undoubtedly, the most significant effect of the global crisis on our banks was the fact that the path of gradual adjustment of imbalances that Spain had undertaken and which until then was the scenario shared by all analysts and national and international organisations, suddenly turned into a collapse of all macroeconomic indicators. That obliged banks and savings banks to accelerate the clean-up of their balance sheets and to set in train what has ultimately become a full-fledged industrial restructuring of the Spanish banking system. 2  BIS central bankers’ speeches  The toolkit at hand, which had been successfully used in the past, was not up to facing a crisis of this nature. The legislation on bank resolution had not been adapted to the demands of the Monetary Union, in particular to the prohibition of monetary financing, and nor did it envisage that it was savings banks that would essentially need to be repaired. Moreover, the singularity of a systemic crisis, on a global scale and with absolutely unrestricted capital movements, made it impossible to make creditors take haircuts without running the very serious risk that market alarm would ultimately lead healthy institutions to sink. Our main strength – one by no means insubstantial – was that the large credit institutions were reasonably sound and that the problems were concentrated in a clearly defined group of small and medium-sized institution.
The aim is not only to strengthen the institutional  BIS central bankers’ speeches  3  architecture but also to advance the implementation of the single market. The ECB’s position in this respect is well-known. Here today I would like to warn against an illusion which seems to be spreading among policy-makers in Europe. The illusion is that the economic governance of the euro area can be strengthened not by increasing the responsibilities of policy-makers, which would mean stronger European institutions and stronger rules, but rather by delegating to financial markets the task of selecting the appropriate policies that authorities must abide by, in particular with respect to budgetary policies. One avenue that has been advocated by some is to make more explicit the conditions under which countries, like companies, would not repay their obligations and would restructure their debts or even default. The proponents argue that such explicit rules would improve the ability of markets to price sovereign risk and, thus, to exert discipline on governments with a view to achieving sounder fiscal policies. This view is predicated on the general principle that investors should bear the consequences of their decisions. Although at first sight this may seem reasonable and fair, it is wrong not only in theory but also in practice. The reasons are simple and include the following: First, as over 50 years of IMF experience have proven, market assessments of the solvency of countries tend to be wrong.

Lorenzo Bini Smaghi: Monetary and financial stability in the euro area Speech by Mr Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, at the Europe Festival Conference on “The state of the Union”, Florence, 10 May 2011. *  *  *  Introduction It is a great pleasure for me to contribute to this Europe Festival Conference on “The state of the Union”. Before turning to my assigned topics, which concern the euro and the monetary policy of the Union, I would like to start with a few general comments. There can be no doubt that these are challenging times for Europe. But the current crisis does not just affect Europe, it affects the whole of the West. Problems such as the sustainability of public finances and the role of the state in the economy, immigration and burgeoning income inequality, concern not only Europe and the euro area, but the whole of the industrialised world. Moreover, this is not a cyclical crisis but a structural one, resulting from the profound changes now sweeping the world. Hundreds of millions of people have risen over the survival threshold, over two-thirds of the world’s population has opted for the market economy model, and there is a perception of a lack of progress in economic and social development and also in civil rights in a large part of the world. There is probably no historical precedent for the speed at which these changes are taking place.
Only then, can financial institutions expect to support the low income and vulnerable segments of our communities as long-term partners to create opportunities that will improve lives. A clear picture of policymakers’ role in promoting an enabling environment for financial innovation and technology Finally, policymakers can play a meaningful role to promote an enabling environment for innovation to support financial inclusion initiatives. I shall focus on three areas. First, regulation should aim to be technology-neutral and outcome-focused, proportionate to risks and harmonized across sectors. A technology-neutral approach allows policymakers to assess the merits of innovations based on the outcomes, without fear or favour for the underlying technology. Regulation should be proportionate to the risks that products or institutions present to the broader financial system. This requires continued efforts to strengthen the capacity among national regulators and supervisors to assess the benefits and cost of regulation. Only then can we really move from proportionality as a concept to practice. Regulation between different sectors should also be harmonised to focus on activities that should be regulated, rather than the institutions conducting such activities. For example, if an e-commerce platform collects, pays interest on and mobilises deposits, a banking license may be necessary as public interest is involved. Second, communicating clear expectations to the market while incorporating feedbacks through engagements with the private sector is important.

Beyond the socio-economic demands, there is a moral obligation for us to do more to help the millions who are still living in abject poverty and highly vulnerable to financial hardship, with no means to change their circumstances. This global symposium presents an opportunity for us to explore solutions from different perspectives. I see this as having “an eye for innovation”. Indeed policy makers are now improving their capabilities in technology and innovation, recruiting talent, establishing dedicated team and intensifying partnership with the private sector, to help them see things a little differently. While there is no shortage of ideas on new and innovative ways to increase financial inclusion, the key challenge to my mind is the ability to scale up and achieve sustainability. The symposium’s theme refers to “harnessing innovation”, but one needs to truly understand innovation in order to successfully tap on such innovation to attain the dual objectives of scale and sustainability in inclusive finance. With that in view, my remarks this morning will focus on three areas where an eye for innovation is needed: a. First, putting on a new lens to spot the opportunities from existing innovations that can be tailored to financial inclusion;  b. Second, identifying and working on our blind spots by driving efficiency gains with technology-enabled financial inclusion; and  c.  Third, having a clear picture of the policymakers’ role in promoting an enabling environment for financial innovation and technology.
It draws on two stylised approaches to resolution: a so-called “single point of entry” approach, under which resolution of a whole group is executed, primarily by the home authority and mainly at the level of the parent or holding company; and, secondly, a “multiple point of entry” approach whereby co-ordinated actions are taken by a number authorities along national, regional or functional lines. There is, of course, a spectrum between those two poles. Identifying the resolution strategy that is most likely best suited to each specific firm is very important. The strategy must be relatively easy to understand – a strategy that cannot be explained concisely to top officials in central banks and regulators is not a strategy at all. But although authorities should try to identify a preferred strategy and should be as transparent as possible, I should caution that what turns out to be the best approach in the event of distress will depend on the circumstances. The suggestion of a “Presumptive Path”, being aired by some in the market, is somewhat unrealistic, at least in its strongest form. Public authorities with statutory obligations to maintain stability cannot bind themselves to detailed strategies that in the event might not work as well as an alternative. At the planning stage, whether a single- or a multiple-point-of-entry strategy looks more feasible will depend upon a group’s organisational and financial structure. It is likely that some groups will need to adapt themselves in order to remove impediments to resolution. Much of that will be case by case.

They estimated that there were an additional 2.4 million borrowers estimated to be in “near negative equity” where the borrower has less than 5 percent equity remaining. Declining house prices will push these near negative equity borrowers into negative equity. This increases the risk that these borrowers will default on their mortgages either out of necessity – say as the result of a job loss – or out of choice, which is called strategic default as borrowers determine that there is little economic advantage to keep paying the mortgage. Longer delays in the foreclosure process further increase the incentive for a borrower to strategically default by extending the period of time that they can live “rent free” in the house. In addition, declining house prices increase the expected losses on those mortgages that do default. Problems in housing markets can impact economic growth. Housing directly effects growth through incentives for builders to build new houses. Housing starts will likely remain depressed as long as house prices are declining. Falling house prices can also negatively impact consumption growth to the extent that homeowners increase their savings in an effort to offset declines in their housing wealth. The degree to which housing markets deteriorate over 2011 and the impact that this will have on overall growth is hard to predict with any accuracy. The most likely outcome is that the economy will continue to improve as the year progresses despite the ongoing drag from housing.
And indeed the European Union is fully engaged in working, together with other members, on proposals to strengthen the WTO in areas such as subsidies, e-commerce, property rights and ensuring enforceability of existing WTO commitments with a well-functioning dispute settlement system that cannot be blocked by any single country.11 At the same time, it is important that the European Union should continue to negotiate trade agreements with other partners. Although, as mentioned earlier, this is not a first best solution, it is time to recognise that regional and multilateral arrangements open to others can succeed where multilateral negotiations have failed to bring many countries into the international trading system. In the financial arena, the emergence of regional initiatives has generated a more robust and better resourced global financial safety net. However, coordination between the different layers should be strengthened, on the understanding that a regional system can complement, but not substitute, the role of the IMF. In my view, the IMF is still essential, for at least four reasons. First, it has unique expertise in crisis management. Second, the participation of the IMF in adjustment-programme design adds an objective view that regional institutions cannot provide, one that is respected both by domestic authorities and by the private sector. Third, in cases of interconnected economies, the involvement of the IMF can dissipate the potential regional concentration of risks.

BIS Review 23/2006  1
Rather, the headwinds facing consumers and businesses are even stronger than we had thought. Against this backdrop, the outlook has weakened substantially. Last June my colleagues on the FOMC and I were projecting real GDP growth would be around 2-3/4 percent in 2011 and 3-1/2 percent in 2012. As I alluded to a moment ago, some of the recent incoming numbers – on manufacturing activity and automobile sales, for example – have improved. Even so, our latest forecast made in early November revised down our outlook for 2011 by a full percentage point and projected GDP growth at just 2-3/4 percent in 2012 – barely above most analysts’ views of the potential rate of output growth for the economy. Such growth  BIS central bankers’ speeches  1  rates certainly are not strong enough to make much of a dent in the unemployment rate and other measures of resource slack. Indeed, the FOMC’s latest forecasts are for the unemployment rate to remain above 8-1/2 percent through 2012 and to fall only to about 8 percent in 2013. Without new developments or changes in policy, I don’t believe the U.S. economy is poised to achieve escape velocity anytime soon. Inflation outlook under 2 percent What about inflation? Large increases in energy prices pushed headline inflation – as measured by the 12-month change in the total Personal Consumption Expenditures Price (PCE) Index – up from about 1-1/4 percent last fall to almost 3 percent this summer. These higher prices certainly took a bite out of households’ budgets.

And second, what about the readiness of other payment instruments, in particular payment cards? Let me first give you my views on the readiness of the customer. Readiness of customers? A parallel can be drawn with another major project, namely the changeover to the euro notes and coins in 2002. Indeed, as with SEPA, many of the preparations for the euro changeover were not visible to the citizens, as they were carried out by technical experts. Furthermore, the banknotes’ security features were disclosed only four months before the launch. As with SEPA, it was difficult to predict how the customer would react. On the other hand, well before the euro changeover took place, the central banking community discussed customer readiness in depth with the aim to ensure acceptance of the euro notes and coins. Well in advance of 2002, the Eurosystem started organising a “partnership programme” that involved the main bodies in the various sectors. This partnership programme emerged from the “megaphone idea” and the understanding that communication on the changeover to the euro had to be at national level by the national public authorities, banking communities and end-user associations. Each sector was encouraged to inform their target groups. Indeed, as if with a “megaphone”, the Eurosystem passed on a common set of key messages to target groups, and they in turn passed on the information to others. Applying the principle of subsidiarity in this context proved itself as the correct way to deal with differences in culture, language and institutional setting.
11  See Special feature A “Financial integration and risk sharing in a monetary union”, in Financial Integration in Europe, ECB, April 2016 and Box 1 “What could enhance private financial risk sharing in the euro area?” in Financial Integration in Europe, ECB, May 2018. See also Asdrubali, P., Sorensen, B. and Yosha, O., (1996) “Channels of interstate risk sharing: United States 1963-1990”, Quarterly Journal of Economics, 111, 1081-1110; Athanasoulis, S. and van Wincoop, E. (2001) “Risk sharing within the United States: What do financial markets and fiscal federalism accomplish?”, Review of Economics and Statistics, 83, 688-698. 16

So the Bank of England has taken extraordinary measures – described as “quantitative easing” – to boost the supply of money in order to support a recovery in the economy and keep inflation on track to meet our target. And because monetary policy is a flexible instrument that can be changed in either direction each month, it is the best tool for managing the economy in the short run. Nevertheless, the road ahead is unlikely to be straight. There is considerable uncertainty about the prospects for both the United States and the euro area – our most important export markets. Business and consumer confidence at home has weakened recently, and it will be some time before our banking sector is able to finance a recovery on the usual terms. The transition to a better balanced economy will be difficult. But we are already seeing encouraging signs of expansion in manufacturing and UK exports. This morning’s figures show a small rise in the claimant count and a small fall in the Labour Force Survey measures of unemployment. But the big picture is that unemployment is higher than before the crisis but lower than many had feared a year ago. In July, on one of my regular visits to different parts of the country, I met with the Scottish TUC in Glasgow to learn more about the labour market there. Our contacts with experienced union officials in touch with a range of companies and sectors are the best source of intelligence on labour markets.
This environment is affecting firms in very different ways. Some companies find themselves with little need for external funds, and so are relatively insulated from tight credit conditions. Indeed, the corporate sector as a whole is currently running an unusually large cash surplus, despite challenging demand conditions. A notable example is energy extraction. UK oil companies have run a large cash surplus – amounting to 1-2% of GDP – for much of the past decade. This accounts for around half of the overall corporate cash surplus over the period. But it’s not just oil companies. The manufacturing sector as a whole is currently a net lender to the UK banking sector: it has more cash on deposit than funds borrowed. Other sectors look to have less healthy cashflow positions in aggregate – construction and real estate, hotels and restaurants amongst them. For many companies, therefore, external finance remains important. For large companies, the bond markets are an option. Some of you have switched the balance of your financing from the banking system to the bond markets. Over the past three years, the Chief Financial Officers of large companies have consistently rated bond finance more attractive than bank borrowing. Such firms seem, on the whole, to have made smaller cuts to investment and employment. Large companies with good access to the capital markets and healthy cash-flow positions may, for the moment, be well placed to support the financing of smaller firms.

In my opinion the protection of the rights of debtors and creditors becomes more – and not less – difficult with the development of financial markets, both in a geographical sense as well as in the range of available products (financial globalisation and innovation). The challenges posed by financial globalisation are not difficult to understand: a financial instrument originated in country A, traded in country B by an intermediary whose headquarters are in country C and purchased by an investor who is resident in country D, to what legal system will it be subject to? How will the citizen of country D be able to enforce his rights, which courts will be responsible for any dispute, what kind of legal redress will it be available on citizens of country A and B? These are questions that lie at the very heart of financial globalisation. From the simple observation that the bulk of cross border capital flows still takes place among advanced countries, one may easily surmise that such legal uncertainties (arguably more important in emerging economies) play a fundamental role in the allocation of financial flows and financial capital worldwide. Over the last years, quite a number of initiatives dedicated at enhancing legal certainty regarding such cross-border financial transactions have been undertaken on a global as well as on a European level. International bodies dedicated to the harmonisation of laws [such as  4  2  Muellbauer et al.