‘Core’-’Periphery’ Crises in the World of Deregulated Financial

GlobalisationSome Parallels between Latin

America and Europe

0 . 0 5 5

0 . 0 5 0

0 . 0 4 5

0 . 0 4 0

0 . 0 3 5

0 . 0 3 0

0 . 0 2 5

0 . 0 2 0

Figure 1. Cross-Border Financial Interconnectedness, 1985–2010

(Index of the number of bilateral links between economies, as a share of all possible bilateral links)

Sep. 1985 Sep. 1988 Sep. 1991 Sep. 1994 Sep. 1997 Sep.2000 Sep.2003 Sep.2006 Sep.2009

Source: Fund staff estimates, based on Hattori and Suda (2007) and banking sector data from the BIS.

Table 1. Key LCFIs (Defined by top book runners)

Institution Country

International Bonds

(All currencies) Rank

Structured Finance

All Intl Issuers Rank

US ABS

Rank

Syndicated Loans

Rank

Equities Europe/Middle

Asia-Pacific East/Africa Rank Rank

US Rank

JPMorgan Chase 1/ US 1 2 3 1 8 1 1 Barclays Bank PLC UK 2 3 1 15 7 Deutsche Bank AG Germany 3 9 5 8 4 10 Bank of America US 4 4 2 2 6 3 4 HSBC UK 5 6 24 10 Credit Suisse Group Switzerland 6 7 18 6 Citigroup 1/ US 7 7 4 6 4 7 9 UBS Switzerland 8 BNP Paribas France 9 7 RBS UK 10 5 6 12 9 Goldman Sachs US 11 10 13 1 2 3 Morgan Stanley US 12 8 22 10 6 2 Credit Agricole SA France 14 9 5 Lloyds Banking Group UK 8 Rabobank Netherlands 10 Wells Fargo US 9 10 8 State Street 1/ US BNY Mellon 1/ US 1/ Some of the largest holders of custody assets. Sources: Thomson Reuters International Financing Review , Issue 1831, May 1, 2010, and IMF staff estimates.

Largest European and U.S. Banks Size Relative to GDP

Country Largest Bank Size in Assets Country's GDP Quotient

France BNP Paribas 2494 2,778.09 90%

Germany Deutsche Bank 2974 3,607.36 82%

United Kingdom Royal Bank of Scotland 3808 2,431.31 157%

United States Citibank 2188 15,075.68 15%

Sources: The Banker's and IMF-WEO, Database, Oct.2012

Europe's Web of Debt NYT Published: May 1, 2010 Banks and governments in these five shaky economies owe each other many billions of euros — converted here to dollars — and have even larger debts to Britain, France and Germany. Arrow widths are proportional to debt amounts. Related Article »

Figure 10 presents four clusters (i.e., countries that together form more of a closed system), centered around a set of core connections that are closely linked to Greece: (i) a red cluster of countries with access to funds domiciled in Luxembourg; (ii) a black cluster with access to funds domiciled in the offshore centers of British Virgin Islands, Jersey, Cayman, Guernsey, and the Isle of Man; (i ii) a blue cluster with Ireland at the core; and (iv) a green cluster of the U.S. with several key European and other countries. Greece is interconnected with each of the central nodes of these clusters.

Rest of Euro Area Exposures to Greece, Ireland, Italy, Portugal, and Spain(In billions of euros and US$)Source: for periphery borrowing from centre IMF-GFSR, Chap.1, Graph 1.7and for GDP figures IMF-WEO, Database, Sept.2013

09-Dec Current

TOTAL 1666 2221 33.3%ECB borrowing 275 859SMP 0 209EFSF/EFSM 0 301Borrowing from private banks 1391 852 -38.7%

Centre of Euroarea GDP (at current prices) 5,795.05 6,378.74Borrowing from private banks/GDP 24.0% 13.4%

in euros

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-1

-0.5

0

0.5

1

1.5

-150

-100

-50

0

50

100

150

200

Euro AreaCurrent Account Balance(in US$ billion and % GDP

Percent of GDP U.S. dollars billions

Austria

Belgium

Cyprus

Estonia

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Malta

Netherlands

Portugal

Slovak Republic

Slovenia

Spain

-12.00 -10.00 -8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 8.00

Euro AreaCurrent Account Balances

Average 2008-2012(in % GDP)

THE basic rule of the gold-standard game, or of any system of multilateral international trade with stable exchange rates, is that a country which has a favourable balance of trade on income account must lend abroad on long term at a more or less commensurate rate; alternatively, a country whose citizens and Government are not prepared to lend abroad must not have a surplus on income account. Any slight and temporary failure of trade balances and rates of lending to keep in step can be provided for by movements to and fro of gold and short-term funds, but a large and continuous disequilibrium puts a strain upon the system which it cannot bear. Joan Robinson “The International Currency Proposals”, Economic Journal, June-September, 1943

The [IMF]'S recent emphasis on imposing major structural and institutional reforms as opposed to focusing on balance-of-payments adjustments will have adverse consequences in both the short term and the more distant future. The [IMF] should stick to its traditional task of helping countries cope with temporary shortages of foreign exchange and with more sustained trade deficits.

Martin Feldstein, Refocusing the IMF, Foreign Affairs, Vol. 77, No. 2 (Mar. - Apr., 1998), pp. 20-33

Andrew Mellon’s advice to Herbert Hoover "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: "It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people." He often used the expression, "There is a mighty lot of real estate lying around the United States which does not know who owns it," referring to excessive mortgages. (1929) p.30 The Memoirs of Herbert Hoover Vol.3 The Great Depression 1929-1941 The Macmillan Company; New York, 1952