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Tuesday, 6 December 2016

Brexit and the Future of European Integration: A Trans-Atlantic Perspective


Ivaylo Iaydjiev (St Antony’s College, Oxford)

Speaker: Russell Kincaid (former IMF director)
Chair: Charles Enoch (St Antony’s College, Oxford)

Since the June referendum a lot of ink has been spilled on the causes and consequences of Brexit for the UK and for the future of European integration. Given the rather inward focus of much of the discussions so far, experts with more distance from the immediate issues can sometimes shed more light. This is exactly what Dr. Russell Kincaid offered to participants in this PEFM seminar by presenting a transatlantic perspective on Brexit and the EU.

Dr. Kincaid argued that the key issue from the US perspective is what Brexit tells us about the future of European integration. Overall, US policymakers see a number of structural problems that plague the EU and believed that they have a better chance to be addressed with the UK inside rather than outside the Union. Indeed, Brexit will not provide solutions to any of the EU and euro problems and instead the resulting complex negotiations risk turning into a powerful distraction for EU policymakers.

More fundamentally, Kincaid identified the source of many of the EU problems as the lack of a clear vision about the ultimate ambition. He recognized that the incremental approach was fundamental to the process of European integration, but noted that it has mostly been an elite-led project suffering from a democratic deficit. Until now, a permissive consensus has allowed integration to proceed, but today these elites find themselves instead constrained by distrust among European publics. 

Monday, 5 December 2016

Book launch: Governance of the European Monetary Union

Blogpost: Alexandra Zeitz, St. Antony’s College, University of Oxford

Speaker: Francisco Torres, LSE
Chair: Charles Enoch, St. Antony’s College, University of Oxford

The edited volume Governance of the European Monetary Union, published by Routledge in 2016, is dedicated to the memory of Max Watson, honouring his scholarship, policy-making and commitment to interdisciplinary research and cross-disciplinary conversation. That commitment to reaching across disciplines and forging common understanding seems particularly necessary in these fraught and challenging times for Europe. 

Francisco Torres (LSE) introduced the book to an Oxford audience at a PEFM seminar in December. In his presentation, he outlined the contributing authors’ case for urgent institutional reforms in the European monetary union. Torres said the book, which he edited together with Erik Jones (Johns Hopkins University), is based on a broadly consensual narrative of the Eurozone crisis.

In this narrative the crisis is understood to have emerged from pervasive economic imbalances among Eurozone members, with flows primarily going from Germany, Netherlands, and France to Spain, Italy, Greece, and Ireland. Excessive public and private debt, which mostly took the form of foreign borrowing, left economies vulnerable to a “sudden stop” in credit. Torres explained that these imbalances arose out of EU countries’ failure to internalize the common objectives agreed upon in the Lisbon Treaty or the Stability and Growth Pact, with necessary reforms delayed in the absence of market pressure or binding and enforceable rules. 

Friday, 2 December 2016

Brexit – what are the options?

Ivaylo Iaydjiev (St Antony’s College, Oxford)

Speaker: Anatole Kaletsky (Gavekal, Reuters, International Herald Tribune)
Chair: Adam Bennett (St Antony’s College, Oxford)

Since the referendum, the options facing Britain have been debated extensively (except by the government which remains tight-lipped), and the discussion is only likely to intensify further as the prospect of invoking Article 50 looms. Anatole Kaletsky, who last appeared before PEFM in January 2016 to discuss the evolution of capitalism in light of the global financial crisis in 2008, returned to PEFM eleven months later to divulge his thinking on the implications of the shock Brexit referendum of 2016, a political and economic event that has finally eclipsed the events of 2008 as the inexorable topic of everyone’s conversation (at least in the UK). Kaletsky’s overarching thesis was that there was still a real possibility that Brexit might not actually take place.

Kaletsky began by deciphering the underlying reasons for the Brexit vote. In light of the US presidential election, it is arguable that the referendum had less to do with particular European issues but is rather symptomatic of a global phenomenon sweeping across the West, driven by demographics, educational attainment and regional disparities. However, Kaletsky sees limited evidence in globalization driving the voting patterns, noting that supporters of Brexit usually had slightly higher incomes than average and were to a large extent outside the labour force (chiefly older retired voters and non-working women). Indeed, those potentially most affected in terms of the impact of immigration on jobs – those just entering the labour market, see freedom of movement not as a threat, but as a benefit of the EU.

Friday, 18 November 2016

Bank resolution in the European financial architecture

Ivaylo Iaydjiev (St Antony’s College, Oxford)

Speakers: Joanne Kellerman, Single Resolution Board
Chair: Charles Enoch, St Antony’s College, Oxford

The euro area crisis is often described as ‘vicious circle’ between sovereigns and banks. At its core, this is generated by a dilemma regulators face when a bank is likely to fail – should they leave the bank to go bust and face the consequences or should they use public money to provide a bailout? As Joanne Kellerman argued in her talk, at its core is a question of whether there is a trade-off between financial stability and market discipline. In response, Kellerman analyzed the role of the Single Resolution Board (SRB), the new European agency charged with taking decisions on resolution, of which she had been a member since its inception in 2015.

Kellerman began by reviewing briefly the crisis experience and the regulatory response. Given the lack of centralized supervision and resolution, when the crisis hit states intervened through the ring-fencing of assets and the provision of taxpayer lifelines to banks. This in turn transformed a banking crisis into a sovereign debt crisis and unleashed the ‘vicious circle’. The EU, after taking a set of emergency measures, sought to overhaul the structure of financial supervision by the creation of set of new bodies. Meanwhile, the problem of ‘too big to fail’ received increasing attention in global forums such as the FSB, which were in the process of being translated into European legislation.

Tuesday, 15 November 2016

Brexit and its impact on the Western Balkans

Ivaylo Iaydjiev (St Antony’s College)

Speaker: Peter Sanfey, European Bank for Reconstruction and Development
Chair: Jonathan Scheele. St Antony’s College, Oxford
Discussant: Adis Merdzanovic, St Antony’s College, Oxford

The impact of Brexit on the UK, Europe, and the world are discussed almost daily in the press and much uncertainty remains. Yet, often lacking from such discussions are its indirect impacts on third countries, such as those in the Western Balkans. In his talk, Peter Sanfey presented new research carried out by the European Bank for Reconstruction and Development on the impact of Brexit on Serbia, Montenegro, Bosnia, Albania, FYROM and Kosovo. His remarks were followed with a brief analysis of the political implications by Adis Merdzanovic from St Antony’s College.

The Western Balkans face an important convergence challenge. Currently, their income is around half of that of other Eastern European countries, and only a quarter of that of Western European countries. Yet, there have been some positive developments, with growth projected to average 3% in 2017, a stable macroeconomic situation, and declining non-performing loans. Over the medium term a set of factors enhance their attractiveness to investors: the prospect of EU membership, good relations with the IMF, a geographic location at a crucial point of China’s New Silk Road, the diverse range of economic activities, and favourable tax and labour costs.  

Friday, 11 November 2016

European Banking Union: The unfinished agenda for a changing Europe


Ivaylo Iaydjiev (St Antony’s College, Oxford)

Speaker: Christos Gortsos, Law School of the National and Kapodistrian University of Athens

Chair: Adam Bennett, St Antony’s College, Oxford

The decision on 29 June 2012 to go ahead with the creation of the European Banking Union (EBU) is often seen as a key turning point in the euro area crisis. The stated goal was, boldly, to “break the vicious circle between banks and sovereigns”. In his talk four years later Prof. Christos Gortsos took stock of how far this has been accomplished and what remains unfinished. In particular, he focused on the key asymmetries in the three main pillars of the EBU: the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM), and the prospective European Deposit Insurance Scheme (EDIS).

Prof. Gortsos began by drawing an important distinction between rules and institutions. According to him, the harmonized rules that form the Single Rulebook are a byproduct of the Global Financial Crisis and are based on global rules such as Basel III or FSB recommendations. However, the EBU represents an evolution in the institutions that implement such rules. Thus, by addressing the asymmetry between increasingly Europeanized rules and their enforcement by national authorities, the EBU should be regarded as a specific consequence of the euro area crisis.

Friday, 4 November 2016

Restoring trust in finance: Competition or moral motivation?


Blogpost: Alexandra Zeitz, St. Antony’s College, University of Oxford

Speaker: Gordon Menzies, University of Technology, Sydney (with Donald Hay and Thomas Simpson)

Chair: David Vines, Balliol College, University of Oxford

Banking suffers from a trust problem. A post-crisis YouGov study found over 70% of respondents agreeing that “Banks aren’t doing enough to get us out of this economic crisis which they helped cause”. In his PEFM seminar in Michaelmas term, Gordon Menzies (University of Technology, Sydney) presented research on the means of restoring trust in banking, arguing that greater competition alone cannot increase public trust in banks. Instead, Menzies argued that bankers’ motivations must be addressed; in order for banks to earn stakeholders’ trust, they must invest in ethics education and professionalization as measures to encourage moral motivation.

Banking did not always have the distrusted reputation it has today. Menzies began his presentation with a history of late 19th to mid-20th century “gentlemen bankers” in Britain. These bankers enjoyed a well-respected reputation for conservative and reliable banking based on personal relationships and close knowledge of their customers. Bankers’ pay was moderate, and the business was not characterized by the cross-selling and conflicts of interest that are now pervasive. 

This all changed with “Big Bang” deregulations in the late 1980s. Menzies pinpointed these reforms in financial markets as leading to changes in British banks’ motivations and behavior. Risk-taking increased rapidly, as did bankers’ remuneration. This risk-taking on its own is not morally objectionable, as Menzies pointed out. Bankers’ behavior can be thought of as a “right to be rogue,” a right purchased with the high returns acquired through risky investments. Investors and customers may countenance rogue behavior as long as it yields them substantial returns.