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The Incomplete Currency

Book Description

A fact-based treatise on the Eurozone crisis, with analysis of possible solutions

The Incomplete Currency is the only technical — yet accessible — analysis of the current Eurozone crisis from a global perspective. The discussion begins by explaining how the Euro's architecture, the relationship between finance and the real economy, and the functioning of the Eurosystem in general are all at the root of the current crisis, and then explores possible solutions rooted in fact, not theory. All topics are analysed and illustrated, making extensive use of examples, tables, and graphics, and the ideas presented are supported by data sets and their statistical elaborations throughout the book. An extensive digital component includes numerical simulations of public debt dynamics for different Eurozone countries, evaluations of the sustainability of programmes like the Fiscal Compact, and stress tests on the ability of institutions like the ESM to cope with major liquidity crises, and the spreadsheets used to calculate data in the book is provided for readers to access for themselves.

The survival of the European monetary union has been questioned due to the accumulation of structural imbalances and the negative effects of the global financial crisis. This book lays out the full extent of the problem, explains what caused it, and provides possible solutions backed by extensive data.

  • Dig down to the root of the Eurozone crisis
  • Learn why austerity doesn't fix anything
  • Understand how the Euro has changed economies
  • Consider possible strategies for recovery

In a macroeconomic context where the monetary policy is the prerogative of the European Central Bank and fiscal policy, hopeless austerity works against the economic recovery of the Eurozone countries. A positive attitude is difficult, but necessary. The Incomplete Currency is an insightful, important resource that guides readers toward real solutions.

Table of Contents

  1. Title Page
  2. Copyright
  3. Dedication
  4. List of Figures
  5. List of Tables
  6. Foreword
  7. Preface
  8. Acknowledgments
  9. About the Author
  10. About the Website
  11. Chapter 1: The Building Blocks of the Single European Currency
    1. 1.1 The Basic Concepts: Financial Flows, Risks and Probability Distribution
    2. 1.2 Sovereign Credit Risk, Public Debt and Inflation
    3. 1.3 Single Curve of Interest Rate: EURIBOR, Euro Swap, Eurepo
    4. 1.4 The Monetary Policy in the Eurozone and the Mechanisms of Transmission
    5. 1.5 Recognition and Management of the Sovereign Credit Risk
  12. Chapter 2: The Eurozone Architecture and the Working Paradigms
    1. 2.1 Relationships within the European Financial System
    2. 2.2 The Transmission Mechanisms between Finance and Real Economy in the Eurozone
  13. Chapter 3: The Single Currency Area in the Context of International Crisis
    1. 3.1 Before the Crisis: the Adverse Effects of the Single Currency
    2. 3.2 The Crisis: Divergence of the Sovereign Debt Curves and the Disintegration of the Single Interest Rate Curve
  14. Chapter 4: Dysfunctional Mechanisms of the Eurozone
    1. 4.1 The Explosion of Target2 Balances and the Unsustainable Accumulation of the Structural Imbalances
    2. 4.2 The Nationalisation of the Public Debt: the Case of Italy
    3. 4.3 The Nationalisation of the Public Debt Pushed to the Extreme: the Case of Greece
  15. Chapter 5: The Pathological Banks-Governments Relationship
    1. 5.1 The Spread Intermediation
    2. 5.2 Collateral Discrimination on the Interbank Market
    3. 5.3 The Divergence Mechanisms in Action: Synergies and Accelerations
    4. 5.4 Case Studies: the Divergence Process in Some Peripheral Countries
  16. Chapter 6: Assessing the Risk of a Euro Break-Up
    1. 6.1 A Historical Perspective on the Possible Break-up of the Euro
    2. 6.2 The Probability of a Euro Break-up
    3. 6.3 Costs and Benefits Associated with the Exit from the Euro
  17. Chapter 7: Financial Assistance and Fiscal Agreements in the Eurozone
    1. 7.1 The Sovereign Bail-out Funds
    2. 7.2 The Reforms of the Stability and Growth Pact and the Fiscal Compact
  18. Chapter 8: The Extraordinary Interventions of the ECB
    1. 8.1 The Securities Market Programme and the Purchases of Covered Bonds
    2. 8.2 The Long-term Refinancing Operations of December 2011 and February 2012 (LTROS)
    3. 8.3 The Outright Monetary Transactions (OMT)
    4. 8.4 The Targeted Long-term Refinancing Operations (TLTROS)
    5. 8.5 The Quantitative Easing
  19. Chapter 9: The European and National Interventions on the Banking Systems
    1. 9.1 The Banking Union
    2. 9.2 The Hidden Recapitalisation of the Peripheral Banking Systems
    3. 9.3 The State Aids to the Banking Systems of the Core Countries
  20. Chapter 10: Mutualisation of the Public Debt and Fiscal Transfers
    1. 10.1 The Mutualisation of the Public Debt in the Eurozone
    2. 10.2 The “Fiscal Currency” and Other Theories for the Unilateral Solution of Problems for Peripheral Countries
    3. 10.3 The Fiscal Transfers: Proposals for Structural Balance of Financial Flows
  21. Chapter 11: Proposals of Monetary Policy Interventions to Overcome the Crisis
    1. 11.1 Reforming the Statutory Objectives of the ECB: the “Zero-spread Target”
    2. 11.2 The Cancellation of Interests on Government Bonds Purchased by the ECB
    3. 11.3 The European Public Debt Refinancing Programme (EPDRP)
    4. 11.4 A Far More Pervasive Intervention: Partial Debt Monetisation
    5. 11.5 The Purchase Programme of Asset-backed Securities Guaranteed by Sovereign States and Supranational Institutions
    6. 11.6 A Measure of Direct Support to the Real Economy: the Cancellation of Impaired Debts of the Non-financial Private Sector
    7. 11.7 A Proposal for an Authentic Sustainability of the Greek Public Debt
  22. Chapter 12: Transparency as a Tool to Prevent Excessive Risk-taking and Contrast the Crisis
    1. 12.1 The Need for a Market Logic as the Basis of the Financial Sector's Regulation
    2. 12.2 Implications of the Lack of Transparency on Risks at a Macro Level
    3. 12.3 Fair Value and Probability Scenarios as a Solution to the Problem of Risk Transparency
  23. Annex A: History of the Crisis from 2007 to the Present
  24. References
  25. Index
  26. End User License Agreement