DISCUSSION PAPERS

The Cyprus Economic Society publishes a series of monographs under the title CES Discussion Paper Series. The Series is registered as an electronic publication with an ISSN number issued by the Cyprus Library. Each monograph in the series will have a separate ISBN number, also issued by the Cyprus Library. During the period 1988 – 2013, CES published a refereed journal; first, The Cyprus Journal of Economics and then its successor, Ekonomia. These have been discontinued.


Discussion Paper
Anatomy of the Cyprus Economic and Banking Crisis 2008-2013: An Assessment of What Really Happened and Why

By Mikis Hadjimichael PhD, CFA – Economic and financial advisor, former senior advisor to the Chairman of the Board of the Bank of Cyprus, and former senior official of the Institute of International Finance (IIF) and the International Monetary Fund (IMF)

Abstract: More than ten years since the dramatic events of March 2013, there seems to be more consensus on the broad causes of the crisis. Yet, there is still no succinct and comprehensive account of what really happened and why. This paper addresses all the related questions, including the built-up of vulnerabilities and the weaknesses in the assessment of the related financial stability risks and in evaluating the proper timing and nature of the needed policy options. The proximate causes of the crisis were: (a) the bursting of the housing and property price bubble; (b) the impact of the Greek debt restructuring on the capital of the two largest banks in Cyprus; (c) the European Banking Authority bank stress tests and the resulting bank capital shortfalls; (d) the worsening in public finances and the related loss of market access for new financing; and (e) the loss of access to the ECB refinancing window. The true origins of the Cyprus economic and financial crisis were: (a) the escalating vulnerabilities and distortions in the banking system that had been fueled by excess liquidity, excessive reliance on volatile non-resident deposits, extremely poor risk management and corporate governance by bank managements, and anachronistic and dangerous practices for lending decisions (through reliance on the value of collateral rather than the borrower’s ability to repay) and for recognizing non-performing loans. The extremely high level of bank balance sheets and the low quality bank loans was a time bomb waiting to explode; (b) ineffective bank supervision caused by the outdated bank supervision legal framework, past forbearance practices and political interference and collusion with bank managements; (c) the emergence of large budget deficits and the loss of market access that substantially limited the available policy options; (d) the apparent lack of an appropriate framework for analyzing financial stability risks and of adequately appreciating the evolving risks in the Euro Area and the related concerns and objectives of official creditors; and (e) the long delay by the government in seeking financial assistance from the troika and the government’s unwillingness to reach an agreement once a program request was finally made. Arguably, a larger financing package than the one agreed in March 2013 without a bailing-in might have been possible if a troika-supported program had been agreed during July-October 2012.

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Discussion Paper
The European Economy and the prospects for enhanced macroeconomic coordination

By: Pierre Jaillet, Associate Research Fellow at the Jacques Delors Institute and at the Institute of International Strategic Relations, in Paris, Former Director General Economics and International Relations, Banque de France

Abstract: What does it mean to build the strategic autonomy of Europe? It is neither a simple nor an easy endeavour. It will take effort to build consensus and more time to agree on a common framework and commit to it, and to make compromises on national objectives. It is all about European sovereignty. It is Europe’s transformation from a giant economic power, into a geopolitical player in the global system. Against a background of accelerating global decoupling trends and great power competition, a drive for European strategic autonomy, acquires a particular significance. But what strategic autonomy will actually mean, what will actually change in terms of funding and organisation, is now less clear. Ultimately it will be about defence and security, enlargement, and deepening.

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Discussion Paper
Building the strategic autonomy of Europe while global decoupling trends accelerate

By: Elvire Fabry, Senior Research Fellow at the Jacques Delors Institute.

Abstract: Inflation has been elevated in 2021-22 in Europe and elsewhere, driven by higher energy and food prices, from exogenous influences, but also driven more by mark ups on profits, than by wage adjustments. However, the balance of risks remains relatively even in the short-term. The expected recession may be avoided. Inflation is more resilient than expected of course, but it may return to 2% by 2025 according to forecasts from the ECB. But still, output growth is surrounded by uncertainties linked with geopolitics, the evolution of the Ukrainian conflict, the possible impact of the Chinese recovery, especially on the prices of energy and raw materials and so on.

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Discussion Paper
The implications for public debt of high inflation and monetary tightening

By: Zsolt Darvas
Date: July 2022

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Discussion Paper
Rethinking Macroeconomic Policy after the Pandemic

Abstract: The paper discusses the different phases of macroeconomic thought from the great depression to the present and looks at the different policy responses to the 2008 global financial crisis and the 2020 pandemic crisis, from the prism of the development of macroeconomics. The policy responses to the last two crisis episodes, were driven by different philosophies on deficit spending and Central Bank debt financing. Unlike austerity policies adopted in the aftermath of the global financial crisis, the response to the pandemic crisis in 2020 led to unprecedented fiscal and monetary expansion. Macroeconomic orthodoxy does not provide a conclusive assessment of what may happen in the aftermath of this unprecedented fiscal and monetary expansion and beckons the question if the inflation of 2021-22 is a transitory phenomenon or the result of the policies that preceded it. In the latter, we may have to rethink macroeconomic policy again.

By: Michalis Sarris
Date: May 2022

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Discussion Paper
Central bank independence: it’s not only about interest rates and price stability

Abstract: Discussions of central bank independence usually centre around monetary policy, specifically the freedom of central banks to use interest rates to tackle inflation. However, as the financial crisis showed, financial stability is also important, and this requires robust supervision/regulation of banks. This can only be achieved if central banks are politically independent and free of regulatory capture.

Keywords: central bank independence, financial crisis, lax bank supervision, financial stability, regulatory capture

By: George M. Georgiou
Date: 24 February 2022

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Discussion Paper
Growth After Crisis in Europe: An Interdependence of Macroeconomic and Structural Policies

The paper discusses and compares the recovery experience of Greece, Ireland, Portugal, and Spain, in light of policy debates and research on the growth impact of macroeconomic and structural reforms.

By: Roumeen Islam, Economic Advisor to the World Bank for Europe and Central Asia
Date: August 1, 2017

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Discussion Paper
The Economics and Prospects of Energy Development and Cooperation in the Levant Including the Cyprus Exclusive Economic Zone

By: Charles Ellinas, CEO and Founder of the EC Natural Hydrocarbons Company
Date: July 1, 2017

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Discussion Paper
The Solution of the Cyprus Problem and the Future of the Cyprus Economy in a Changing Global System

By: George Vassiliou, Former President of the Republic of Cyprus (1988-1993)
Date: June 1, 2017

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Discussion Paper
Greece And The Eurozone Crisis: An Evaluation

By: Yiannis Kitromilides, University of Cambridge
Date: December 1, 2016

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Discussion Paper
Fiscal Federalism: Public Goods, Transfers and Common Pools

By: Juergen von Hagen, University of Bonn
Date: September 1, 2016

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