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This paper argues that fiscal convergence in the Euro area has been achieved at the expenses of real divergence in unemployment, investment and at, at least temporarily, growth. Statistical and econometric analysis support the view that the current fiscal framework has addressed debt sustainability concerns, but has imparted a pro-cyclical bias, which has contributed to economic divergence. The recent flexibility guidelines are a step in the right direction, but they are unlikely to have sizable effects. A reform of the fiscal framework and a mechanism for an intra-European unemployment insurance scheme is proposed.

This paper looks at the recent debt crisis in Greece and argues that the crisis exemplifies a sequence of systematic mistakes made by International Financial Institutions, mistakes whose consequences had been clearly anticipated at the time of the first bail-out and could have been avoided. I will argue that the "original sin" of international creditors has been that of refinancing, rather than partially writing off, the debt. This mistake has led to excessively restrictive policies, and has ultimately to interventions of bail-out/in much larger than those which would have solved the problem at the outset, causing unnecessary pain to the economy and damaging both creditors' and debtors' interests.

Introduction / Katsikas, Dimitris and Manasse -- Designing structural reforms in times of crisis : lessons from the past / Katsikas, Dimitris -- The political conditions for economic reform in Europe's south / Terzi, Alessio -- The persistence-resilience trade-off in unemployment the role of labor and product market institutions / Aksoy, Tolga and Manasse, Paolo -- Reforms and external balances in southern Europe and Ireland / CatÆo, Lus A. V -- Labour market reform in Portugal under the adjustment programme lessons for policy design / Turrini, Alessandro -- Some unpleasant labour arithmetics a tale of the Spanish 2012 labour market reform / Cuerpo, Carlos, Geli, Federico and Herrero, Carlos -- Balancing adjustment policies and structural reforms in Greece : the case of product markets / Petralias, Athanassios, Anastasatou, Marianthi and Katsikas, Dimitris -- The political economy of Cyprus : financial sector reform / Clerides, Sofronis -- Non-performing loans in the European periphery : the political economy of reform / Panagiotarea, Eleni -- The restructuring of Spain's banking system : a political economy approach / Otero-Iglesias, Miguel and Steinberg, Federico -- Conclusions / Manasse, Paolo and Katsikas, Dimitris

The "great recession" has affected labor markets in Euro-area countries in very different ways. This chapter documents two important aspects of their response: the impact effect of the recession on the rate of unemployment, and the persistence of high unemployment. We find that countries lie on a trade-off between "resilience" and "persistence": countries where the rate of unemployment is less affected on impact by output shocks (resilience) typically show higher unemployment persistence. We investigate the role of labor and product market institutions, and find evidence that more protected markets are associated to more resilience at the expense of more persistence. This suggests that implementing front loaded "structural reforms" at times of a fiscal consolidation, as many Southern European countries did during the recent crisis, may foster the rise in unemployment and possibly undermine the political support for the reforms. When we estimate the contribution of product and labor market reforms to the rise of unemployment in Southern Europe, however, we find positive, but relatively small effects that are quickly reversed.

The "great recession" has affected labor markets in Euro-area countries in very different ways. This chapter documents two important aspects of their response: the impact effect of the recession on the rate of unemployment, and the persistence of high unemployment. We find that countries lie on a trade-off between "resilience" and "persistence": countries where the rate of unemployment is less affected on impact by output shocks (resilience) typically show higher unemployment persistence. We investigate the role of labor and product market institutions, and find evidence that more protected markets are associated to more resilience at the expense of more persistence. This suggests that implementing front loaded "structural reforms" at times of a fiscal consolidation, as many Southern European countries did during the recent crisis, may foster the rise in unemployment and possibly undermine the political support for the reforms. When we estimate the contribution of product and labor market reforms to the rise of unemployment in Southern Europe, however, we find positive, but relatively small effects that are quickly reversed.

We estimate the short-run impact of a major flood that hit the region of Veneto in 2010 on firms' performance. Using firm level data and a difference in difference approach we compare the value added growth of hit firms to the one of a control group of companies that are not exposed to the flood. The results indicate that the value added growth of affected firms is 6.9% higher two years after the flood. We further investigate the role of aid transfers in the aftermath of the disaster event. Considering both the flood and the aid treatment, we construct four mutually exclusive and exhaustive groups. The results indicate that, among firms exposed to the flood, both the ones that benefit from financial aid and the ones that don't grow faster than the reference groups of firms that neither are exposed to the flood, nor receive financial aid. We also find a 2% additional growth effect that is attributable to the contribution of aid in the recovery phase.

This paper addresses the following questions. Is there evidence of financial contagion in the Eurozone? To what extent a country's vulnerability to contagion depends on "fundamentals" as opposed the government's "credibility"? We look at the empirical evidence on European sovereigns CDS spreads and estimate an econometric model where a crucial role is played by time varying parameters. We model CDS spread changes at country level as reflecting three different factors: a Global sovereign risk factor, a European sovereign risk factor and a Financial intermediaries risk factor. Our main findings are as follows. First, Unlike the US subprime crisis which affected all European sovereign risks, the Greek crisis is largely a matter concerning the Euro Zone. Second, differences in vulnerability to contagion within the Eurozone are even more remarkable: the core Eurozone members become less vulnerable to EUZ contagion, possibly due to a safe-heaven effect, while peripheric countries become more vulnerable. Finally, market fundamentals go a long way in explaining these differences: they jointly explain between 54 and 80% of the cross-country variation in idiosyncratic risks and in the vulnerability to contagion, largely supporting the "wake-up call" hypothesis according to which market participants become more wary of market fundamentals during financial crises.

This paper addresses the following questions. Is there evidence of financial contagion in the Eurozone? To what extent a country's vulnerability to contagion depends on "fundamentals" as opposed the government's "credibility"? We look at the empirical evidence on European sovereigns CDS spreads and estimate an econometric model where a crucial role is played by time varying parameters. We model CDS spread changes at country level as reflecting three different factors: a Global sovereign risk factor, a European sovereign risk factor and a Financial intermediaries risk factor. Our main findings are as follows. First, Unlike the US subprime crisis which affected all European sovereign risks, the Greek crisis is largely a matter concerning the Euro Zone. Second, differences in vulnerability to contagion within the Eurozone are even more remarkable: the core Eurozone members become less vulnerable to EUZ contagion, possibly due to a safe-heaven effect, while peripheric countries become more vulnerable. Finally, market fundamentals go a long way in explaining these differences: they jointly explain between 54 and 80% of the cross-country variation in idiosyncratic risks and in the vulnerability to contagion, largely supporting the "wake-up call" hypothesis according to which market participants become more wary of market fundamentals during financial crises.