samchain/econo-pairs-v1 huggingface dataset:
Why was the internal devaluation strategy effective in Latvia and the Baltics, while other countries are still struggling with a deep economic and political crisis? It is worth drawing lessons from the Baltic experience for euro area member countries. BIS central bankers’ speeches  1  II. Lessons for euro area member countries  Let me start with fiscal consolidation. The Baltic experience shows clearly that speed is of the essence. In all three Baltic countries, the government reacted swiftly to the deterioration of public finances and frontloaded fiscal adjustment. With a budget consolidation of around 9% of GDP in 2009 alone, Latvia’s effort is unparalleled in Europe. Undertaking the necessary austerity measures at an early stage had a triple beneficial effect. First, it allowed the Baltics to benefit from positive confidence effects. Second, it allowed Latvia to return to the financial markets well ahead of schedule. Third, it allowed growth to bounce back after exceptionally severe output contractions. In 2011 the Baltic countries were the three best performers in the EU in terms of GDP growth. At a time when all euro area policy-makers urgently seek ways to relaunch growth, this is a remarkable achievement. The concept of “expansionary contraction” has been used and criticised in the ongoing debate about growth and austerity. The Baltic experience provides an indication that this need not be an oxymoron: even if fiscal consolidation weighs on the growth prospects in the short term, it has sizeable positive effects in the medium to long term.

The cumulative output decline was 24%; unemployment peaked at 20%. Compared with this economic collapse, even some of the euro area peripheral countries were faring relatively better. Keeping the euro peg was considered by many as a “mission impossible”. External devaluation was presented as the only way forward. But Latvia did not choose the easy “quick fix”. It embarked on a courageous fiscal consolidation path and structural reforms. Two years later, the speed of the economic rebound is as extraordinary as the depth of the recession. Against all the odds, Latvia recorded a real GDP growth rate of 5.5% in 2011. While domestic demand was the main driver of growth last year, exports have also recovered very strongly. Evidently, Latvia’s competitiveness has improved, even though many challenges still lie ahead. The economic dynamics behind this swift stabilisation and recovery merit close examination. Equally interesting is the political economy of the Baltic adjustment. Jean-Claude Juncker once said: “we all know what to do but we don’t know how to get re-elected afterwards”. This saying, often referred to as “Juncker’s curse”, unfortunately seems to be confirmed by the crisis in vast segments of the euro area. Italy, Greece, Ireland, Portugal: in all of these countries the government fell directly as a result of its handling of the economic crisis. Latvia seems to be the exception to the rule. Despite harsh austerity measures the Prime Minister managed to get re-elected twice. Many ruling politicians in Europe these days may look upon this with incredulous admiration.
The subsequent fiscal and financial adjustments have put a strong downward pressure on prices and wages (the HICP fell in 2014 in Greece, Spain, Portugal, Ireland and Cyprus). To achieve relative price adjustment while keeping aggregate euro area inflation close to 2% would require higher inflation in the so-called core economies. In principle, this could occur through a rebalancing of financial flows from Core to peripheral countries within the euro area and higher domestic spending in core economies. In practice, net savings rates have remained high in several core economies with capital instead flowing outside of the euro area, mirroring an increasing current account surplus. Downward price pressures are therefore occurring in peripheral economies without offsetting upward price pressures in the core economies. For example, the year-on year inflation rose in 2014 in Germany by 0.8% and in France by 0.6%. In summary, in the Euro area half of the decline in inflation can be attributed to a fall in energy prices and another quarter to the fall in food prices. The remaining quarter is explained by the slowdown in core inflation, which has declined by 0.7 percentage points, reflecting a lower inflation in services and in non-energy industrial goods. 3  European commission forecast of Nov. 2012: 0.1 in 2013 and 1.4 in 2014. Realized growth: −0.4 in 2013 and 0.9 in 2014.

The oil price futures used in our forecasts turned out to be poor predictors in volatile oil markets.2  1  2  A recent BdF working paper argued that short-term unemployment is more meaningful than total unemployment when looking at the Phillips curve in the US. Cf. Ferrara L. and Sestieri G. in Banque de France, Quarterly Selection of Articles, No. 36, Winter 2014-2015. Bec, Frédérique and Annabelle De Gaye (Nov. 2014), “How do oil price forecast errors impact inflation forecast errors? An empirical analysis from French and U.S. inflation forecasts.” Banque de France Working Paper 523. BIS central bankers’ speeches  1  But downside surprises also occurred for core inflation suggesting the need for complementary explanations. One candidate is the continuous appreciation of the euro between mid-2012 and the beginning of 2014, which has lowered prices of many imported non-energy industrial goods. One can expect this impact to be transitory as the euro has subsequently depreciated since the middle of 2014. This depreciation reflects the differences in the growth cycle between the euro area and its main partners and accordingly the differences in monetary policy. Those explanations do not account for the slowdown in domestic prices, which must then be attributed to an increase in domestic slack. For the European Commission the output gap widened from −2% in 2012 to −3% in 2013.
Another dominant paradigm which came under scrutiny in recent years is that of the superiority of foreign-owned banks vis-à-vis domestically-owned banks, both in times of sustained growth and in times of crisis. The arguments for this view are well-known and they have to do with improved efficiency, better expertise, alleviation of the shortage of domestic capital, and increased competition. Also, some authors (for instance, Haas and Lelyveld in 2009) claim that the presence of international banking groups on local markets has a positive effect in mitigating the consequences of a crisis. Before making my own remarks on this matter, let me introduce some caveats: first, nobody disputes the superiority of foreign-owned private banks with respect to domestically-owned state banks in newly emerged market economies. The comparison needs to be made between foreign-owned private banks and domestically-owned private banks. In this respect, it is worth mentioning that Central and Eastern Europe is the only region in the world where foreign-owned banks dominate as a share of total assets, whereas in the developed markets, Latin America or Asia, domestic private banks are prevalent. Second, this dominance is a relatively new phenomenon: the share of foreign-owned banks became prevalent as late as the first years of this century, even in Central and Eastern Europe. In other words, it has been possible to verify the paradigm in practice only in the last few years. It is fair to say that foreign-owned banking prevalence in Central and Eastern European countries has happened more by default than by design.

Broadly speaking, we believe that this goal was attained. The current circumstances are different. Once again, we are facing a crisis which could adversely affect economic activity and agents' income. However, this time, some loss of income is inevitable, insofar as it is caused by the rise in the prices of goods that we do not produce. Attempting to avoid the adjustment that is needed will only trigger a more persistent and protracted inflationary process, with very negative consequences for competitiveness and economic stability. A different monetary policy response is therefore needed. I will now address the role of each area of economic policy in the current setting, beginning with monetary policy. ECB monetary policy The ECB is responsible for maintaining price stability in the euro area. That is how it can best help ensure sustainable economic growth over the medium term. To explain the ECB's response to this inflationary episode, it is useful to remember that it defines price stability as a symmetric inflation target of 2% over the medium term. The aim is therefore not to stabilise current, observed inflation, but to stabilise inflation over a two to three-year horizon. This is justified because our actions affect inflation in a very gradual way, achieving their maximum impact after about two years, and is particularly appropriate in the face of certain kinds of shocks – such as adverse supplyside shocks, which push inflation and activity in opposite directions in the short term.
European Central Bank: Press conference – introductory statement Introductory statement by Mr Jean-Claude Trichet, President of the European Central Bank, Frankfurt am Main, 8 March 2007. *  *  *  Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by Mr Steinbrück, President of the ECOFIN Council, and Commissioner Almunia. At today’s meeting, we decided to raise the key ECB interest rates by 25 basis points. This decision was taken in view of the upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses. Today’s decision will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards fostering sustainable economic growth and job creation in the euro area. After today’s increase, given the favourable economic environment, our monetary policy continues to be on the accommodative side, with the key ECB interest rates moderate, money and credit growth vigorous, and liquidity in the euro area ample by all plausible measures. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted. The Governing Council will monitor very closely all developments so that risks to price stability over the medium term do not materialise.

More fundamentally, stronger than currently expected wage developments would pose significant upward risks to price stability, not least in view of the favourable momentum of real GDP growth observed over the past few quarters. It is therefore crucial that the social partners continue to meet their responsibilities. In this context, wage agreements should take into account price competitiveness positions, the still high level of unemployment in many economies, as well as productivity developments. The Governing Council will monitor the upcoming wage negotiations in the euro area countries very carefully. The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. Annual M3 growth was unchanged at 9.8% in January, thus remaining at the highest rate observed since the introduction of the euro. At 10.6%, the annual growth rate of loans to the private sector also remained strong in January. Strong growth in private sector credit reflects the continuation of the upward trend in the growth of borrowing by non-financial corporations seen since mid-2004. Meanwhile, in the context of rising mortgage rates throughout the euro area and a slowing increase in house prices in some regions, the growth of household borrowing has shown some further signs of moderation in recent months, albeit remaining at still high rates. Taking the appropriate medium to longer-term perspective for assessing trends in money and credit growth, the latest developments confirm the continuation of a persistent upward trend in the underlying rate of monetary expansion.
Luis M Linde: Situation of and challenges facing the European and Spanish banking industry following the start-up of the Single Supervisory Mechanism (SSM) Opening address by Mr Luis M Linde, Governor of the Bank of Spain, at the 10th Banking Industry/IESE (Escuela de Negocios de la Universidad de Navarra) Meeting, Madrid, 10 December 2014. *  *  *  I much appreciate Professor Juan José Toribio’s kind invitation to me to participate in this 10th Banking Industry Meeting. In my address I shall review the situation of and the challenges facing the European and Spanish banking industry following the start-up of the Single Supervisory Mechanism (SSM). Since the height of the tensions in mid-2012, the position of the Spanish banking industry has improved notably. This improvement has been due to a series of factors, ranging from far-reaching changes in European institutional arrangements to common monetary policy measures and, no doubt, to the reforms in Spain. Clearly, however, the improvement cannot be explained without recalling the changes made in our banking system. Recapitalisation, restructuring, downsizing and reform of the savings bank sector have spearheaded the Spanish banking industry reform and have contributed to correcting the imbalances that had built up. The improvement in Spanish banks was substantiated by the interim assessments made by the European (the ECB and the European Commission) and international (IMF) authorities until the European Union’s financial assistance programme for the recapitalisation of Spanish banks was successfully concluded in January this year.

At the moment, both total, or headline, inflation and core inflation, which excludes the volatile food and energy prices, have increased but remain below levels consistent with our dual mandate objectives – which most members of the FOMC consider to be 2 percent or a bit less on the personal consumption expenditures measure. Moreover, the rise in commodity prices is likely to put further upward pressure on headline inflation in the coming months. Provided commodity prices level off around current levels, the effect on inflation should be transitory. But we will need to ensure that commodity price pressures do not cause inflation expectations to become unmoored. If that were to occur, it would be more difficult to keep inflation in check. To sum up, economic conditions have improved in the past year. Yet, the recovery is still tenuous. And, we are still far from the mark with regard to the Fed’s dual mandate. In particular, the unemployment rate is much too high. Economic conditions in Puerto Rico Now let me turn to economic conditions in Puerto Rico. In contrast to the situation during my last visit, I am pleased to see signs that the Commonwealth may finally be emerging from this painful recession. Nevertheless, conditions remain difficult for many families. The recession here has been deeper than the downturn on the mainland. By mid-2010, total employment in Puerto Rico had fallen by 13 percent or 138,000 jobs from its peak in 2005.
The regional tradition is poor, of little inheritance in institutions, market rule and behaviour, and financial intermediation. However, today, about 15 years after the big collapse of the communist regime it seems that South East European Countries (SEEC) have been engaged in an irreversible process of their stabilization and integration with the rest of Europe. 2  BIS Review 44/2005

The closer these cushions are to levels that reflect potential future exposure across a more adverse set of market conditions, the more resilient markets and institutions will be under conditions of stress, and the less likely the prospect that the behavior by institutions will amplify financial shocks. Stress testing and scenario analysis is an important part of the process of calibrating this relationship between risk and capital and margin. The test of a sufficiently strong process is not simply the realism of the process used to measure potential losses, but the impact that it has on the decisions made by the institution on the size and type of exposures relative to earnings, capital and collateral or margin and the terms on which it extends credit. Let me conclude by noting again that we are in a period of perceived strength in economic fundamentals in the United States and many countries around the world. This strength has helped to induce significant reductions in a range of market-based perceptions of risk. Much of this confidence may prove warranted and durable, but the extent to which it endures will depend in part on the degree to which those running the major financial institutions in the United States use the opportunity presented by this period of relatively high profitability to strengthen their capacity to withstand a less favorable overall macroeconomic and financial environment.
This formula, which was conceived for the first Eurosystem cooperation programme with the Bank of Russia on banking supervision, was successfully implemented between 2003 and 2005. Over the coming 33 months, the ECB and the national central banks that I mentioned earlier will be working closely with the Bank of Russia on the programme. The project will be coordinated by a team consisting of Ms Gulsana Barpiyeva, from the Deutsche Bundesbank, who will be the Eurosystem project coordinator in Moscow, Mr Christian Fehlker, the Eurosystem team leader for banking supervision, and Mr Lukasz Kubicki, the Eurosystem team leader for internal audit. The project will be managed by an ECB team in Frankfurt. The expertise on the implementation of the Basel II framework and the risk-based internal audit practices will be provided by the national central banks and the ECB’s Internal Audit Department. In the context of this programme, Bank of Russia experts will have the opportunity to visit their colleagues in EU countries. Russia and the European Union are important partners. One key aspect of the partnership is the overall objective of the European Union and the Russian Federation to enhance the regulation, supervision and governance of financial markets in Russia. This should contribute to improving the investment climate and supporting closer economic relations between the EU and Russia. We very much appreciate the assistance of the European Commission in giving substance to this aim, as this cooperation programme is supported by the Delegation of the European Commission to Russia with a budget of € million.

But it took a crisis caused by the failure of Lehman Brothers to trigger the coordinated government plan to recapitalise the system. It would be a mistake, however, to think that had Lehman Brothers not failed, a crisis would have been averted. The underlying cause of inadequate capital would eventually have provoked a crisis of one kind or another somewhere else. So where does this leave us? The recapitalisation plan is having a major impact on the restoration of market confidence in banks. Perhaps the single most important diagnostic statistic is the credit default swap premium – an indicator of market concerns about solvency of banks. These premia have fallen markedly since the announcement of the UK plan. From the close of business on 7 October to now the premia on the UK’s five largest banks have more than halved. We are far from the end of the road back to stability, but the plan to recapitalise our banking system, both here and abroad, will I believe come to be seen as the moment in the banking crisis of the past year when we turned the corner. As concerns about the viability of our banks recede, banks should regain the confidence of the market as recipients of funding. There are already some signs of greater activity. But the age of innocence – when banks lent to each other unsecured for three months or longer at only a small premium to expected policy rates – will not quickly, if ever, return.
What is not acceptable is to fall between regimes – for instance to argue that by holding backing assets such as sovereign bonds that are in general much safer than those on a bank’s balance sheet, this is good enough to ensure convertibility into fiat money at par. Low risk is not the same as no risk. This is why the FPC set out in its Financial Stability Report that stablecoins used in systemic payment chains should meet the standards equivalent to those expected of commercial bank money in relation to stability of value, robustness of legal claim and the ability to redeem at par in fiat. 5  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  5  Some major stablecoin proposals do not appear at present to meet this expectation  Some stablecoin proposals do not include a legal claim for coin-holders. And some stablecoins propose backing in instruments that may have material market, credit and liquidity risk, but do not have the money protections I have outlined. While this might be acceptable for speculative investment purposes, it would not be for payments widely relied upon by households and businesses. Stablecoins need to offer coin-holders a robust claim, with supporting mechanisms and protections to ensure they can be redeemed at any time 1-to-1 into fiat currency. Some may ask if this would rule out a multi-currency stablecoin? Such a proposition is the wrong place to start – it raises questions around the value of the coin, and the underlying money it represents.

I have outlined the key role of authorities in ensuring the stability of money, through issuing and ensuring confidence in central bank money (from monetary policy through to making it hard to counterfeit), and regulating banks to ensure commercial bank money is stable and convertible on demand. Oversight of payment systems transferring this money ensures they are resilient and can be used with confidence. But the changing nature of money causes us to pause and consider the importance and implications of money which extend much further than a simple exchange of value or financial transaction, and the policy implications are much greater than the specific mission of a central bank. In short, money has social, and not just financial functions. Who should be responsible for the integrity and security of the digital payments architecture? Digital currencies will create not just a novel form of money, but also a new payment infrastructure, which while likely bringing benefits to payment efficiency, raises questions around transparency and how resilience and consumer protection will be ensured. Central banks might be involved in this infrastructure too, but where might the role of the central bank start, and stop? Privacy and data protection issues are also a key question. Digital currencies, depending on their design, could provide considerable information on how people spend their money, and we cannot compromise on the protection of our privacy. Private firms might seek to use these data, with appropriate user consent, to offer improved services, but we’ve seen widespread mis-use of data in the past.