From Saviour to Guarantor EU Member States' Economic Intervention During the Financial Crisis

by Bassan, Fabio; Mottura, Carlo D.

• ISBN13: 9781137441553
• ISBN10: 1137441550
• Format: Hardcover
• Copyright: 2015-08-26
• Publisher: Palgrave Macmillan

Summary

State guarantees commonly function as financial panacea, allowing states to consolidate banking systems and create intergovernmental funds. Rules surrounding state guarantees were relaxed during the 2007-2008 financial crisis, allowing states to use them for financing small and medium-sized enterprises (SMEs) and workers' severance payments. Despite many multi-level interventions in many areas after the financial crisis, from international treaties to EU regulations, no specific regulation has been put in place to control state guarantees.

This book addresses the subject of state guarantees in the Eurozone, and questions the stability of the instruments implemented so far by states and by the European Union. Using a methodology combining law and finance, it examines the tools adopted by European institutions and Member States in the EU's evolving institutional context, in order to evaluate the effectiveness of the tools themselves as well as of the new European institutional framework. It also addresses the unconventional measures adopted by the European Central Bank, its role as safeguard for European state guarantees and its interaction with the European Union and national courts. In From Saviour to Guarantor the authors suggest that the absence of specific regulatory interventions and the variety and vagueness of existing rules has resulted in state guarantees further destabilising public international finance.

Author Biography

Fabio Bassan is Professor of International Economic Law and European Law at the Department of Business Studies, 'Roma Tre' University, Italy. He is Founding Director of the Sovereign Wealth Funds Law Centre, and his areas of interest include international law, European law, sovereign wealth funds, regulation of financial markets, corporate governance, corporate finance, law & economics, and the political economy of regulation.

Carlo Mottura is Professor of Financial Mathematics, Financial Valuation and Risk Management at the Department of Business Studies at 'Roma Tre' University, Italy. His research interests include the control of risks, financial valuation under uncertainty, financial restructuring, and enterprise evaluation. He has also lead research projects funded by the Consiglio Nazionale delle Ricerche (CNR).

Table of Contents

Introduction
PART I: THE EU'S INSTITUTIONAL ACTION
1. The EU Action To Face The Crisis
1.1 EU Action In Support Of The Member States' Public Debt
1.2 EU Action In Support Of The Banking System
1.3 Eurostat Public Contingent Liabilities
1.4 Differences Between EU And US Actions
2. State Guarantees And State Aid
PART II: THE FINANCIAL VALUATION OF A GUARANTEE CONTRACT
3. The Defaultable Guarantee Contract.
3.1 The Guarantee Contract And Credit Derivatives Market
3.2 The Relevant Issues.
4. Valuation Under A Standard Model.
PART III: THE STATE GUARANTEES IN THE EU
A) State Guarantees For The Safeguard Of The Euro
5. Guarantees In Favour Of The European Stability Mechanism (ESM)
5.1 The Financial Scheme
5.2 Main Features Of The Guarantees
6. Effects Of The Guarantees
6.1 Valuation And 'Model Risk'
6.2 The Lack Of Effective Sanctioning Instruments
6.3 Different Sovereignties For Eurozone Member States
6.4 The ECB And The Lever Of Archimedes
B) State Guarantees For The Stability Of The Banking System
7. The State Guarantees To Cover Bank Debt
7.1 The Financial Scheme
7.2 Main Features Of The Guarantees
8. Effects Of The Guarantees
8.1 Legal Guarantee Fee And Market Price
8.2 Moral Hazard Effects
8.3 Distortions In Banking Competition
8.4 Member State Guarantees And EU Coordination
PART IV: INNOVATION AND CRISIS-FIGHTING MEASURES IN THE EU
9. The Instruments That Triggered The Crisis In 2007-2008
9.1 The 'Path' Of Risk: From Private Individuals To Banks
9.2 (Continued): From Banks To Markets
9.3 (Continued): From Markets To States
9.4 Cultural Sustainability Of Innovation In Anti-Crisis Public Finance
10. The ECB's Unconventional Measures Facing The Challenge Of Markets And National Courts
10.1 Characteristics Of The Main Unconventional Measures
10.2 The Scope Of The Measures As Outlined By The ECB And By The Case Law
10.3 Application Of The Constraints Set By The Bverfg For Omts To Other Unconventional Measures
Conclusions