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Emerging Europe and the Great Recession Emerging Europe and the Great Recession Emerging Europe and the Great Recession By Daniel Dăianu Emerging Europe and the Great Recession By Daniel Dăianu This book first published 2018 Cambridge Scholars Publishing Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Copyright © 2018 by Daniel Dăianu All rights for this book reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. ISBN (10): 1-5275-0881-1 ISBN (13): 978-1-5275-0881-1 CONTENTS List of Illustrations ..................................................................................... ix List of Tables ............................................................................................... x Acknowledgements .................................................................................... xi Preface: Why This Volume? ..................................................................... xiv Introduction ................................................................................................. 1 Part I. Society and the Great Recession Chapter One ............................................................................................... 12 Limits of Openness 1. What went wrong? ........................................................................... 12 2. Reinterpreting globalisation ............................................................. 14 Chapter Two .............................................................................................. 20 When Models Crumble 1. Reform of the regulation and supervision of financial markets ....... 20 2. Revision of financial organisations’ business models ...................... 21 3. Risk modelling needs to change ....................................................... 21 4. More suitable cognitive models are needed ..................................... 22 5. Downsizing the financial sector makes sense .................................. 22 6. Economies need to be more balanced to enhance their robustness and resilience .................................................................................. 23 7. Globalisation may have gone too far, so corrections are needed ..... 23 8. Models of economic integration need re-thinking ........................... 24 9. The relationship between governments and society needs to be repaired ........................................................................................... 24 10. Revisiting the rules and institutions of the international regime is a must ......................................................................................... 25 Chapter Three ............................................................................................ 26 When Finance Corrodes Economy and Undermines Democracy vi Contents Chapter Four .............................................................................................. 33 Who Creates Money and What This Is Used For? 1. Commercial banks precede central banks ........................................ 35 2. The money vs. credit debate ............................................................ 36 3. Money creation and financial stability ............................................. 38 4. Crypto (parallel)-currencies and the money supply ......................... 39 5. Financial system overhaul proposals ............................................... 41 6. What would happen to credit? ......................................................... 42 7. Unconventional policies ................................................................... 44 8. What does the future hold for finance? ............................................ 45 Chapter Five .............................................................................................. 47 Resilience and Robustness: When Systems are Under Siege 1. Shocks: Conventional and unconventional ...................................... 48 2. Why has robustness (resilience) been falling? ................................. 50 3. What to do now? .............................................................................. 55 4. Instead of conclusion: Is a new industrial revolution the solution? .... 61 Chapter Six ................................................................................................ 63 The Inward Looking Syndrome (The New Protectionism): Where Does It Come From and Where Could It Go? 1. A few historical benchmarks............................................................ 64 2. Why is protectionism returning in the developed world? ................ 66 3. Simple analytics of a trade-off ......................................................... 68 4. A resurrection of national interests .................................................. 70 5 The New Protectionism: Whither? .................................................... 72 Part II. The European Union and the Great Recession Chapter Seven ............................................................................................ 76 Domestic Cycles, Financial Cycles, and Policies: What Has Gone Wrong? 1. Introduction ...................................................................................... 76 2. Domestic cycles and the financial cycle: The story of a big bubble ... 79 3. When the financial cycle meets “secular stagnation” ...................... 84 4. An Age of ultra-low interest rates? .................................................. 92 5. The Financial Cycle and macroprudential policies ........................ 103 6. Elements of a policy agenda .......................................................... 106 7. Final remarks ................................................................................. 112 Emerging Europe and the Great Recession vii Chapter Eight ........................................................................................... 119 Regaining Financial Stability: Taming Financial Markets is a Must 1. Introduction .................................................................................... 119 2. Financial stability: Rediscovering structure ................................... 120 3. A focus on NMSs: The role of structure ........................................ 125 4. Regaining financial stability .......................................................... 137 5. Issues to ponder on......................................................................... 150 Chapter Nine ............................................................................................ 153 The Euroarea Crisis 1. Introduction .................................................................................... 153 2. Roots of strain in the EMU ............................................................ 154 3. Deceptive aggregate deficits in the EMU: Why there is a need for a fundamental repair? ............................................................. 159 4. The EU policy response: Crisis management and reforming the EU (EMU) governance ........................................................... 161 5. The policy space challenge ............................................................ 170 Chapter Ten ............................................................................................. 173 External Imbalances and the Governance of the Euroarea 1. A global perspective ...................................................................... 175 2. A European perspective ................................................................. 179 3. Conclusion ..................................................................................... 183 Chapter Eleven ........................................................................................ 186 The European Union and the International Policy Regime 1. Why the Bretton Woods logic needs to be rediscovered ................ 186 2. The Euroarea needs its own Bretton Woods .................................. 189 3. Democratic order demands taming financial markets .................... 191 4. Rediscovering the logic and spirit of Bretton Woods .................... 192 Part III. Romania and the Great Recession Chapter Twelve ....................................................................................... 196 A Central Bank’s Dilemmas during Highly Uncertain Times 1. Introduction .................................................................................... 196 2. Romania: Huge correction of imbalances in a highly unfavourable environment ............................................................ 197 3. Older vintage policy issues/dilemmas ............................................ 200 4. Recent vintage dilemmas: A new age? .......................................... 206 5. Final remarks ................................................................................. 218 viii Contents Chapter Thirteen ...................................................................................... 219 Whither Romanian Capitalism? 1. Introduction: Romania in a crisis-ridden environment................... 219 2. Where has Romania come from? ................................................... 220 3. Post-communist transition in Romania .......................................... 225 4. Romanian capitalism in its post-communist phase ........................ 232 5. Romania, the EU, and catching
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