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The Future of Europe the Eurozone and the Next Recession Content
April 2019 Chief Investment Office GWM Investment Research The future of Europe The Eurozone and the next recession Content 03 Editorial Publication details This report has been prepared by UBS AG and UBS Switzerland AG. Chapter 1: Business cycle Please see important disclaimer and 05 Cyclical position disclosures at the end of the document. 08 Imbalances This report was published on April 9 2019 10 Emerging markets Authors Ricardo Garcia (Editor in chief) Chapter 2: Policy space Jens Anderson Michael Bolliger 14 Institutional framework Kiran Ganesh Matteo Ramenghi 16 Fiscal space Roberto Scholtes Fabio Trussardi 19 Monetary space Dean Turner Thomas Veraguth Thomas Wacker Chapter 3: Impact Contributors Paul Donovan 23 Bond markets Elisabetta Ferrara Tom Flury 26 Banks Bert Jansen Claudia Panseri 29 Euro Achim Peijan Louis Pfau Giovanni Staunovo Themis Themistocleous Appendix Desktop Publishing 32 The evolution of the EU: A timeline Margrit Oppliger 33 Europe in numbers Cover photo 34 2020–2025 stress-test scenario assumptions Gettyimages Printer Neidhart + Schön, Zurich Languages English, German and Italian Contact [email protected] Order or subscribe UBS clients can subscribe to the print version of The future of Europe via their client advisor or the Printed & Branded Products Mailbox: [email protected] Electronic subscription is also available via the Investment Views on the UBS e-banking platform. 2 April 2019 – The future of Europe Editorial “Whatever it takes.” These words of Mario Draghi’s marked the inflection point in the last recession and paved the way to the present economic recovery. But as the euro celebrates its 20th birthday, the world and investors are beset again by recessionary fears, with risks mounting and likely to continue doing so in the coming years. -
Anatomy of a Crisis
Page 7 Chapter 2 Munich: Anatomy of A Crisis eptember 28, 1938, “Black Wednesday,” dawned on a frightened Europe. Since the spring Adolf Hitler had spoken often about the Sudetenland, the western part of Czechoslovakia. Many of the 3 Smillion German-speaking people who lived there had complained that they were being badly mistreated by the Czechs and Slovaks. Cooperating closely with Sudeten Nazis, Hitler at first simply demanded that the Czechs give the German-speakers within their borders self-government. Then, he upped the ante. If the Czechs did not hand the Sudetenland to him by October 1, 1938, he would order his well-armed and trained soldiers to attack Czechoslovakia, destroy its army, and seize the Sudetenland. The Strategic Location of the Sudetenland Germany’s demand quickly reverberated throughout the European continent. Many countries, tied down by various commitments and alliances, pondered whether—and how—to respond to Hitler’s latest threat. France had signed a treaty to defend the Czechs and Britain had a treaty with France; the USSR had promised to defend Czechoslovakia against a German attack. Britain, in particular, found itself in an awkward position. To back the French and their Czech allies would almost guarantee the outbreak of an unpredictable and potentially ruinous continental war; yet to refrain from confronting Hitler over the Sudetenland would mean victory for the Germans. In an effort to avert the frightening possibilities, a group of European leaders converged at Munich Background to the Crisis The clash between Germany and Czechoslovakia over the Sudetenland had its origins in the Versailles Treaty of 1919. -
The Pound Sterling
ESSAYS IN INTERNATIONAL FINANCE No. 13, February 1952 THE POUND STERLING ROY F. HARROD INTERNATIONAL FINANCE SECTION DEPARTMENT OF ECONOMICS AND SOCIAL INSTITUTIONS PRINCETON UNIVERSITY Princeton, New Jersey The present essay is the thirteenth in the series ESSAYS IN INTERNATIONAL FINANCE published by the International Finance Section of the Department of Economics and Social Institutions in Princeton University. The author, R. F. Harrod, is joint editor of the ECONOMIC JOURNAL, Lecturer in economics at Christ Church, Oxford, Fellow of the British Academy, and• Member of the Council of the Royal Economic So- ciety. He served in the Prime Minister's Office dur- ing most of World War II and from 1947 to 1950 was a member of the United Nations Sub-Committee on Employment and Economic Stability. While the Section sponsors the essays in this series, it takes no further responsibility for the opinions therein expressed. The writer's are free to develop their topics as they will and their ideas may or may - • v not be shared by the editorial committee of the Sec- tion or the members of the Department. The Section welcomes the submission of manu- scripts for this series and will assume responsibility for a careful reading of them and for returning to the authors those found unacceptable for publication. GARDNER PATTERSON, Director International Finance Section THE POUND STERLING ROY F. HARROD Christ Church, Oxford I. PRESUPPOSITIONS OF EARLY POLICY S' TERLING was at its heyday before 1914. It was. something ' more than the British currency; it was universally accepted as the most satisfactory medium for international transactions and might be regarded as a world currency, even indeed as the world cur- rency: Its special position waS,no doubt connected with the widespread ramifications of Britain's foreign trade and investment. -
'The Birth of the Euro' from <I>EUROPE</I> (December 2001
'The birth of the euro' from EUROPE (December 2001-January 2002) Caption: On the eve of the entry into circulation of euro notes and coins on January 1, 2002, the author of the article relates the history of the single currency's birth. Source: EUROPE. Magazine of the European Union. Dir. of publ. Hélin, Willy ; REditor Guttman, Robert J. December 2001/January 2002, No 412. Washington DC: Delegation of the European Commission to the United States. ISSN 0191- 4545. Copyright: (c) EUROPE Magazine, all rights reserved The magazine encourages reproduction of its contents, but any such reproduction without permission is prohibited. URL: http://www.cvce.eu/obj/the_birth_of_the_euro_from_europe_december_2001_january_2002-en-fe85d070-dd8b- 4985-bb6f-d64a39f653ba.html Publication date: 01/10/2012 1 / 5 01/10/2012 The birth of the euro By Lionel Barber On January 1, 2002, more than 300 million European citizens will see the euro turn from a virtual currency into reality. The entry into circulation of euro notes and coins means that European Monetary Union (EMU), a project devised by Europe’s political elite over more than a generation, has finally come down to the street. The psychological and economic consequences of the launch of Europe’s single currency will be far- reaching. It will mark the final break from national currencies, promising a cultural revolution built on stable prices, enduring fiscal discipline, and lower interest rates. The origins of the euro go back to the late 1960s, when the Europeans were searching for a response to the upheaval in the Bretton Woods system, in which the US dollar was the dominant currency. -
A SCOTTISH CURRENCY? 5 Lessons from the Design Flaws of Pound Sterling 2 | a SCOTTISH CURRENCY? CONTENTS
A SCOTTISH CURRENCY? 5 Lessons from the Design Flaws of Pound Sterling 2 | A SCOTTISH CURRENCY? CONTENTS A Scottish Currency? 3 The design flaws of the pound: 4 1. The amount of money in the economy depends on the confidence of bankers 4 2. Any attempt to reduce household debt can lead to a recession 5 3. The economy can only be stimulated through encouraging further indebtedness 6 4. The proceeds from the creation of money are captured by the banking sector rather than benefiting taxpayers 7 5. Banks cannot be allowed to fail, because if they did, the payments system would collapse 8 Conclusion 9 More information 10 5 LESSONS FROM THE DESIGN FLAWS OF POUND STERLING | 3 A SCOTTISH CURRENCY? In September 2014, Scotland will hold a referendum to decide whether to separate from the UK. A major question concerns which currency an independent Scotland would use: the pound, the euro, or a new Scottish currency? The Scottish government has stated that it will keep the pound sterling following a successful Yes vote for independence1. But an independent Scotland, making up just 8.5% of a pound sterling monetary union, would have no sway over monetary policy set by the Bank of England. Meanwhile the governor of the Bank of England, Mark Carney, and senior government ministers have been vocal about the challenges of an independent Scotland using the pound. For this reason, an independent Scotland may have to abandon the pound and establish its own currency, to regain control over its own monetary policy and economic affairs. -
Why the Euro Will Collapse
Why the Euro will collapse Whither Europe ?’ CIBAM Global Business Symposium 21 June 2013 Michael Kitson University of Cambridge www.michaelkitson.org https://twitter.com/MichaelKitson Europe is not working Source: Eurostat: 2013 Unemployment in Europe (April 2013) Source: Eurostat, 2013 Youth unemployment rates in Europe, Jan 2000 - April 2013 (%) Source: Eurostat, 2013 Source: Eurostat Explaining the crisis • A debt crisis austerity is the solution • A ‘structural’ or ‘competitiveness’ problem reducing the role of the state and more ‘competition’ • A Euro problem the single currency is structurally flawed The Euro problem • Combined countries together with different structures and different business cycles • Lack of policy flexibility • Lack of market flexibility • Why has the Euro problem not emerged before? • Masked by the twin deficits: – fiscal – balance of payments Source: Eurostat database Source: Eurostat database Balance of payments on current account, selected countries (% of GDP) Source: Simon Wren-Lewis: http://mainlymacro.blogspot.co.uk/2012/03/other-eurozone-crisis.html The lack of policy flexibility • Exchange rates • Monetary policy • Fiscal policy • Resource transfers Eurozone: long-term interest rates, 1993-2013 Author: Spitzl, available on a creative commons license, (GNU Free Documentation License) Data Source: http://sdw.ecb.europa.eu European Fiscal Compact • A debt-to-GDP ratio below 60% • A general budget deficit less than 3.0% of the GDP • A structural deficit of less than 1.0% of GDP if the debt-to-GDP ratio -
Brexit: the End of the Beginning
ACCESS A BROADER MARKET PERSPECTIVE BREXIT: THE END OF THE BEGINNING BY PETER MADIGAN LONG DIVISION The defining moments that led up to the current deadlock over Brexit JANUARY 1, 1973 The United Kingdom accedes to the European Economic Community, a free trade and customs union JUNE 5, 1975 In a referendum on continued EEC membership, the UK votes 67.2% in favor of remaining part of the bloc SEPTEMBER 16, 1992 Black Wednesday—GBP is forced to leave the ERM NOVEMBER 1, 1993 The EEC becomes the European Union, evolving from an economic union into a political union JANUARY 1, 1999 Launch of the euro, the EU’s official currency MAY 1, 2004 Ten new Eastern European and Mediterranean nations accede to EU membership OCTOBER 4, 2009 New Greek government elected, revealing scale of Greece’s public sector deficit. European sovereign debt crisis begins JUNE 23, 2016 UK referendum on whether to withdraw from the EU. Nation votes 51.9% in favor of leaving the bloc OCTOBER 17, 2019 UK Prime Minister Boris Johnson negotiates amended departure agreement with EU leaders DECEMBER 12, 2019 UK general election. Johnson seeks Conservative majority to push his deal through UK Parliament JANUARY 31, 2020 Current deadline for the UK to leave the EU SOURCE: BNY MELLON COVER ILLUSTRATION: ROB DOBI WHATEVER THE EVENTUAL FATE OF THE UK’S STORIED RELATIONSHIP WITH THE EUROPEAN UNION, THE SEEDS OF THE TORTURED BREXIT SAGA WERE SOWN MORE THAN THREE DECADES AGO. YET, FAR FROM HERALDING A NEW ERA FOR UK-EU RELATIONS, THE REFERENDUM HAS ONLY SERVED TO DEEPEN PREEXISTING DIVISIONS WHILE DESTABILIZING BRITISH POLITICS. -
Review of Financial Regulation in the Crown Dependencies
Review of Financial Regulation in the Crown Dependencies Presented to Parliament by the Secretary of State for the Home Department by Command of Her Majesty November 1998 Cm 4109-i Part 1 - Main Report £17.85 Cm 4109-ii Part 2 - The Jersey Finance Centre £10.30 Cm 4109-iii Part 3 - The Guernsey Finance Centre £12.60 Cm 4109-iv Part 4 - The Isle of Man Finance Centre £11.40 published by The Stationery Office as Part 1 ISBN 0 10 141092 1 Part 2 ISBN 0 10 141093 X Part 3 ISBN 0 10 141094 8 Part 4 ISBN 0 10 141095 6 Review of Financial Regulation in the Crown Dependencies OFFICE OF THE REVIEW OF FINANCIAL REGULATION IN THE CROWN DEPENDENCIES c/o Home Office 50 Queen Anne's Gate London SW1H 9AT Rt Hon Jack Straw MP Home Secretary Home Office 50 Queen Anne's Gate London SW1H 9AT 24 October 1998 Dear Home Secretary REPORT OF THE REVIEW OF FINANCIAL REGULATION IN THE CROWN DEPENDENCIES You commissioned me on 20 January 1998 to review with the Island authorities in Jersey, Guernsey and the Isle of Man their laws, systems and practices for regulation of their international finance centres, the combating of financial crime and co- operation with other jurisdictions. I have pleasure in submitting my Report with this letter. As explained in Chapter 1, the Report consists of four Parts. Part I presents my own assessment. I take responsibility for what it says. It includes a two-page summary of Principal Issues followed by a full Summary and Main Conclusions and then the Main Report. -
Protecting Pegged Currency Markets from Speculative Investors Arxiv
Protecting Pegged Currency Markets from Speculative Investors Eyal Neuman∗ Alexander Schied∗∗ February 16, 2020 Abstract We consider a stochastic game between a trader and a central bank in a target zone market with a lower currency peg. This currency peg is maintained by the central bank through the generation of permanent price impact, thereby aggregating an ever increasing risky position in foreign reserves. We describe this situation mathematically by means of two coupled singular control problems, where the common singularity arises from a local time along a random curve. Our first result identifies a certain local time as that central bank strategy for which this risk position is minimized. We then consider the worst-case situation the central bank may face by identifying that strategy of the strategic investor that maximizes the expected inventory of the central bank under a cost criterion, thus establishing a Stackelberg equilibrium in our model. Mathematics Subject Classification 2010: 93E20, 91G80, 60J55 Key words: currency peg, market impact, target zone models, singular stochastic control, local time, Stackelberg equilibrium 1 Introduction In September 16 of 1992, a day which is known as Black Wednesday, the British government was forced to step out of the European Exchange Rate Mechanism (ERM). Shortly before this arXiv:1801.07784v5 [q-fin.MF] 17 Feb 2021 crucial date, the British pound exchange rate was close to its lower limit, and currency market speculators were trying to take advantage of this opportunity to drive down the exchange rate by making immense short orders. Among the other speculators stood out George Soros who shorted 10 billion pounds within a single day. -
Invesco Currencyshares British Pound Sterling Trust
FXB As of June 30, 2021 Invesco CurrencyShares British Pound Sterling Trust Fund description Growth of $10,000 ® The Invesco CurrencyShares British Pound Invesco CurrencyShares British Pound Sterling Trust: $8,362 Sterling Trust (trust) is designed to track the price WM/Reuters British Pound Closing Spot Rate: $8,605 of the British pound sterling, and trades under the $12K ticker symbol FXB. The British pound sterling is the official currency of the United Kingdom (England, Wales, Scotland and Northern Ireland) and has been the currency of the accounts of the $10K Bank of England since 1694. The Fund is rebalanced quarterly. ETF Information $8K Fund Name Invesco CurrencyShares British Pound Sterling Trust Fund Ticker FXB CUSIP 46138M109 $6K Total Expense Ratio 0.40% 06/11 12/12 05/14 10/15 03/17 08/18 01/20 06/21 Listing Exchange NYSE Arca Data beginning 10 years prior to the ending date of June 30, 2021. Fund performance shown at NAV. WM/Reuters British Pound Closing Spot Rate performance prior to 11/13/2008 reflects the noon buying rate as determined by the Federal Reserve Bank of New York. From 11/13/2008, forward, the performance Benchmark Index Data reflects that of the WM/Reuters British Pound Closing Spot Rate AND IS NOT INTENDED FOR ANY THIRD Index WM/Reuters British Pound Closing Spot PARTY USE. Blended index performance applies only to the Growth of $10,000. Name Rate Performance as at June 30, 2021 Performance (%) Fund YTD 1Y 3Y 5Y 10Y Inception ETF - NAV 0.87 11.35 1.31 0.39 -1.78 -1.44 ETF - Market Price 0.95 11.17 1.36 0.49 -1.76 -1.43 Benchmark Index 1.06 11.80 1.52 0.66 -1.49 - Calendar year performance (%) 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 ETF - NAV 2.85 3.97 -6.05 9.06 -16.44 -5.77 -6.18 1.54 4.29 -0.98 Benchmark Index 3.19 4.02 -5.85 9.48 -16.16 -5.47 -5.86 1.89 4.59 -0.74 Performance data quoted represents past performance, which is not a guarantee of future results. -
Explaining the September 1992 ERM Crisis: the Maastricht Bargain and Domestic Politics in Germany, France, and Britain
Explaining the September 1992 ERM Crisis: The Maastricht Bargain and Domestic Politics in Germany, France, and Britain Explaining the September 1992 ERM Crisis: The Maastricht Bargain and Domestic Politics in Germany, France, and Britain Christina R. Sevilla Harvard University Dept. of Government Cambridge, MA 02138 [email protected] Presented at the European Community Studies Association, Fourth Biennial International Conference, May 11-14, 1995, Charleston, SC. Comments welcome. In September of 1992, the seemingly inexorable movement of the European exchange rate mechanism from a system of quasi-fixed exchange rates towards monetary union and ultimately a common currency by the end of the decade was abruptly preempted, perhaps indefinitely. Massive speculative pressure on the eve of the French referendum precipitated the worst crisis in the thirteen- year history of the European Monetary System, resulting in the ejection of the sterling and the lira from the ERM, the devaluation of the peseta, the threat of forced devaluation of several other currencies, including the "hard-core" franc, and the abandonment or near-abandonment of unilateral currency pegs to the system by non-ERM countries. Together with political recriminations and blame-laying between Britain and Germany in the aftermath, the crisis represented a tremendous blow to the goals of political and economic integration recently affirmed by EC member governments in the Maastricht Treaty on European Union in December 1991. Nevertheless, conventional wisdom at the time dictated a more sanguine assessment of the prospects for EMU, in the belief that the strains within the ERM were due to the unfortunate confluence of exceptional circumstances -- the shock of German reunification, a debt-driven recession in Britain, and the uncertainties caused by the Danish and French referendums on Maastricht. -
UNITED KINGDOM Europe UNITARY COUNTRY
UNITED KINGDOM EUROPe UNITARY COUNTRY Basic socio-economic indicators Income group - HIGH INCOME: OECD Local currency - Pound Sterling (GBP) Population and geography Economic data AREA: 242 509 km2 GDP: 2 597.4 billion (current PPP international dollars) i.e. 40 210 dollars per inhabitant (2014) POPULATION: million inhabitants (2014), 64.597 REAL GDP GROWTH: 2.9% (2014 vs 2013) an increase of 0.7% per year (2010-14) UNEMPLOYMENT RATE: 6.1% (2014) 2 DENSITY: 266 inhabitants/km FOREIGN DIRECT INVESTMENT, NET INFLOWS (FDI): 45 457 (BoP, current USD millions, 2014) URBAN POPULATION: 82.3% of national population GROSS FIXED CAPITAL FORMATION (GFCF): 17% of GDP (2014) CAPITAL CITY: London (16% of national population) HUMAN DEVELOPMENT INDEX: 0.907 (very high), rank 14 Sources: OECD, Eurostat, World Bank, UNDP, ILO Territorial organisation and subnational government RESPONSABILITIES MUNICIPAL LEVEL INTERMEDIATE LEVEL REGIONAL OR STATE LEVEL TOTAL NUMBER OF SNGs 389 27 3 419 local authorities County councils and Greater Devolved nations Average municipal size: London Authority 166 060 inhabitantS Main features of territorial organisation. The United Kingdom is a unitary state composed of four constituent countries (England, Northern Ireland, Scotland and Wales) and three devolved administrations (Northern Ireland, Scotland and Wales), having their own elected assembly and government since the devolution process in 1998. The project of devolution of limited political powers to elected regional assemblies in England has been suspended indefinitely following the rejection of the first referendum held in the North-East of England in 2004. The territorial organisation is highly complex and differs greatly between the different countries.