Home > Free Essays > Economics > Regulation of Finance > Risk assessment for commercial loans
Cite this

Risk assessment for commercial loans Term Paper


Introduction

The twelve member- countries that make up the European Union (EU) formed in the year 2002 have for a long time now been using the euro as their common currency.

The use of this currency was implemented at Maastricht with an aim of strengthening the European Union as a key player in the world economy as well as to decrease the distortions and uncertainties that have been attached to the many currencies that have been used in the market1.

The 1997 adoption of the euro zone took place with an aim of ensuring that budgetary discipline was maintained within the EU. Germany was during this time the greatest influence towards the implementation of the agreement (Williamson, 600).

As a way of ensuring that the European Monetary Union (EMU) effectively performed its role, the 12 member countries came to an agreement referred to as the rule or the special international institution also referred to as the Stability and Growth Pact (SGP).

The role of this rule was to enhance as well as ensure that there was economic homogeneity among all country members of the EMU before they introduced the use of the Euro as a common currency as well as internal stabilization of the Euro zone2. The use of the Euro by the member states was a way of agreeing that all money spent and borrowed is kept under control as a way of enhancing the stabilization.

By maintaining budget discipline among the member countries, the pact seeks to ensure that it prevents excessive deficits and debts thus promoting monetary stability. Here, economic policies within the member countries are coordinated at the European level.

The pact has more often been discussed during the past as well as the current times with debates ranging on whether it has been a success or not. Some countries such as Germany, France and Portugal have continuously been found to fall short of the criteria set by this pact and have instead used their strong political power over other countries to reduce the strength of the pact.

It is the poor and unequal performance of the Euro among these member states led to the reformation of the SGP in 2005 as a way of seeking more flexibilities within these states3.

This paper explores on the implementation of the Stability and Growth Pact with focus being on its various functions and importance to the members of the European Union as well as to the global economy.

The Stability and Growth Pact (SGP) of the European Union (EU)

History

The history of the European Union dates back to the early years of 1969 when governments and presidents made a decision to create a monetary and economic union and make it an official European integration goal4.

This was followed by the Werner Plan of 1970 which saw to the proposition to have coordination of the economic policy among the six member states as well as the development of a system where there were fixed parties and use of one common currency.

This plan was however hindered by the collapse of the Bretton-Woods-System which was a system, functional between 1945 and 1971, where foreign exchange rates all around the globe were fixed5.

After a number of years of with unpredictable floating rates, the European Community (EC), with an exception of the United Kingdom, came to an agreement to form the European Monetary System (EMS) in 1979. The implementation of this system was to allow for moderate floating rates for all its currencies.

Though revaluations could be done on the bilateral -rates, the allowed flow of currencies was only within a 2.25% band on either side. Failure to obey this regulation would call for the intervention of the central banks.

This system incorporated the use of currencies in the years that followed up to 1992 when it broke down as a result of critics and propaganda against a number of currencies that included the Swedish crone, Sterling Pound and the Italian Lira.

Despite its reformation, this system did not come to gain its former value gain with a number of the currencies leaving the system while others expanded their bands to 15% hence not much could be fixed. Prior to the downfall of this system, a number of stern actions towards monetary integration were embarked on.

After the 1988-1989 Delor Report, complete capital movement liberalization was attained in 1990. 1992 saw to the creation of a treaty through which the European Community through which a number of achievements were made.

These achievements included the establishment of a common market, incorporation of modern aspects of political and economical integration to the treaty system as well as the establishment of the European Union (Hule, 32).

The Maastricht agreement of 1992 defined 3 monetary integration stages6. Stage one ran between 1990 and 1994 and had various technical necessities that included central bank legislation and capital movements.

Stage two which ran between 1994 and 1999 aimed at strengthening economic- policy convergence between state members as well as the establishment of the European Monetary that would act as a monitoring body. Stage three was to ensure that eligibility criteria be identified.

The pact

It became very distinct and clear in the 1990’s that the Maastricht treaty’s criteria and regulations were not a guarantee to a transitioned without hiccups on the common currency factor7.

The 1997 Amsterdam treaty had a political pact which was linked to the convergence criteria which was erstwhile agreed upon in Maastricht with four legal documents in its roots; article 99 and article 104 of the Maastricht treaty, June 17th general council resolution, and July 7th regulation 1466 and 1467 of the council8.

The stability and growth pact is made up of three main elements; political adherence by all parties, preventive elements and dissuasive elements. Preventive elements are convergence programs that ensure monetary convergence in the European community which is to be reported by all members to the commission.

The dissuasive elements are mainly the excessive budget deficit procedure. Of most importance to the pact are the obligations which are to be met by the members, the council and the commission but not the convergence criteria. Member countries have a commitment to a balanced budget or a certain medium run surplus and they ensure all the required goals are met to make this a reality.

One function of the commission is reporting of the excessive budgets to the members as a criterion of early warning and facilitation of strictness, timeliness and effectiveness in the functioning of the pact.

The commission is the core guardian which monitors the main body of the stability and growth pact. It carries out coordination matters whilst decision making is left to the council in order to make the body run smoothly. The council also has the critical function of enhancing timely and rigorous implementations of the pact elements if there happens to be violations in the convergence criteria9.

The Convergence Criteria

In addition to the self-commitment of all significant players in EMU, the accord on certain criteria of convergence is very crucial for the SGP10. These criteria approved on in 1992 and yet again in 1997, and functional from 1997 on for likely and authentic members, are as follows;

  1. Price stability: inflation should be less than 1.5 per cent greater than in the three countries’ most price stable.
  2. Interest rates Convergence: the long term interest rates has to be less than 2% higher than in the 3 countries most price stable.
  3. Exchange rate stability: the exchange rate’s is not permissible to lead the groups of the EMS (in fact 15 per cent whichever side) or its innermost rate to be de-evaluated for at least 2 years (this decisive factor leads to a two years delay of any additional attainment, so that an improvement of the Euro zone is not possible before the year 2006, and improbable before the year 2007).
  4. Budgetary balance budget and a debt criterion): national budget shortfalls are not permissible to go beyond 3 per cent comparative to GDP and the overall lack of debts is not tolerable to surpass 60 per cent comparative to GDP, even though these duties are declining continually11.

The first 3 of these criteria have proven to be and are particularly significant during the accession progression to the “monetary union”, the fourth is additionally important for assessment of the existing EMU. While on or after accession on the first 3 criteria are not in national capability, but mainly in the accountability of the “European Central Bank” (ECB), the responsibility for the 4th relics with the national governments.

This has raised an eyebrow amongst many scholars on whether a common policy is a possibility in an area where there are differing fiscal policies12. Precisely due to the reason that the member states remain committed, it is not enough to have self control which is interdependent and the European Union has to do the monitoring and the controlling of the processes.

Economic point of view

The method of thinking following the SGP represented from unswervingly from the assumption of optimum legal tender sections (which in actual fact is there or thereabouts a theory of “in service” currency regions).

At the center of this theory (in whatever alternative) 2 “influences” are analyzed: the influence of economic directness within the individual area and the influence of economic union13. Both powers act in favor of “monetary union: the more open countries are (the more they trade

Relative” to the GDP), the more they are damaged economically by exchange rate changes and consequently it makes logic to bring in a single currency (in addition to due to the cost cutting effect of trade facilitation by the regular currency); the more there is economic union between countries, the reduced amount of likely non-symmetric shocks are and the less likely it is essential or even makes logic to accurate for shocks by means of the available exchange rate changes14.

The Convergence Criteria are unswervingly drawn from this examination, particularly from the convergence account and to a third significant account: to provide self-assurance in the monetary union.

All tangible goals that are to be reached (the slim inflation, rates of interest, and exchange rates corridors, and the existing numbers in lieu of budgetary discipline) in actual fact have been brought in to promote economic union before – and optimistically during the monetary union (MU) at the individual rate and level15.

This is particularly true for the criterion measuring price increases, because large price increases and differences between the member countries put demands on the set exchange rates and for that reason these countries cannot outline a most favorable currency region (and might also have troubles in forming an operating currency region).

This is measured by the inflation rate decisive factor in the diminutive run, at the same time as the interest rate decisive factor has been set up to compute inflation prospects in the long run16.

The exchange rate measures has been put into practice to integrated marketplace forces into the scheme as some variety of routine stabilizers and as scheming forces. If the marketplace believes that union will be sustainable to a sufficient amount, then the exchange rate will not be critically re-valued by the marketplace.

Also the budgetary criterion is due to putting weight on the states so as to guarantee this important sustainability. Large shortfalls may lead to price increases in the average run and a far above the ground debt ratio hence means that more hazard of budget deficit in the long run.

As a final point, to extend confidence in this joint self commitment of all affiliate countries, the supporting obligations have been subjected to a code. This makes it potential to take lawful actions at the “European Court of Justice” (Court) to elucidate, who has dishonored the treaty17.

One may justifiably doubt if this attentiveness on the “convergence account” and the particular focus on the “self-assurance account” are sufficient to ensure the changeover of the associates of the ‘monetary union” into a most favorable currency region (or at least an operating currency area).

Some extra as well significant forces have considered: from the economist’s opinion especially labor markets and wage suppleness, from the politician’s standpoint particularly centralization of observation, and authorizing power.

The stability and growth pact institution

The SGP is a structure of rules about the association between states within a group of people to provide global public merchandise like economic stability and also growth18.

These “merchandise” are “globally public” due to the significance of “stability and growth” contained by an area which is economically extremely mutually dependent and owing to the reality that countries can take pleasure in the reimbursement from “stability and growth” without paying the cost.

Growth in particular pertaining to the leading economies in the union leads due to the widespread marketplace and to trade put into effect the effects to expansion in the EU as a sum total and to more augmentation in all of its associate countries, and monetary steadiness leads to extra predictability of the monetary surroundings and for that reason reduces threats and costs for all the members19.

Furthermore the SGP is a multifaceted organization, because it is entrenched into the institutional structure of the European Union in a multi-layer organization.

It can be analyzed as an economic organization in this logic either with regard to its tangible rules (for example the information used for the union criteria) at the height of “supremacy” or with revere to its overall structure (for example what competencies what a particular body has) at the height of “surroundings”20.

The following argument will be centered on the competencies with only a few considerations with reference to the previous criteria, although a tangible history of only faintly more than ten years is not exceptionally long for an “environmentally oriented” institutional organization to develop fully.

This associates that the procedure of potential transformation of the SGP is quite sluggish, and that this procedure is centered on the splitting up of competencies between associate countries, the Commission, and lastly the Council. Furthermore the study is entirely focused on general necessities and regulations (e.g. “we need convergence criteria”); not on existing measures (e.g. “what criteria should be implemented”)21.

This also entails, that the study is educational in the logic, that the recent communal discussion in relation to the SGP is not very much reproduced in it, for the reason that this discussion is focused on punctual modification of the agreement (which seems not to be very effective, predominantly in the middle and extended run), and not on legitimate questions similar to anchoring the SGP in a novel European constitution and also on how (which happens to be extremely significant for the future of EMU)22.

The inquiry to be responded is, if there is equilibrium of players and a stability of power included in the SGP that will show the way the economic procedure to the outcome desired.

Connection of the SGP to the political system of the European Union

The SGP in its current design features three more troubles, directly associated to the political organization of the Union: the equilibrium of actors and consequently the equilibrium of power are not made certain; the means of alteration are indistinct; and each and every one if this leads to the truthful unfeasibility of sanction.

The three pertinent actors for the SGP are the Council, Commission, and lastly the associate state(s).

The association between these players is not very obvious, which has shown the way to a grievance by the Commission at the “Court” against the “non action” of the Council in the case of countries like Germany and France in the autumn of 2003. In the month of July 2004 the Court affirmed this as an infringement of the pact, which to some extent changed the equilibrium of power in favor of the “guardian of the treaties”23.

Until in recent times the Commission was having a serious shortfall in pressure compared to the associates states, since the final choice concerning an “excessive deficit procedure” and concerning sanction was politically motivated, to be decided on – by competent majority in the Council.

Therefore, the associates, in particular the big ones which include France, Germany, and Italy, in actual fact were capable to triumph over any stern restriction on the budgetary guidelines, on condition that at least there was a hazard that adequate other countries may have comparable problems in close proximity to the future. It has been demonstrated by some researchers in advance of the EMU that this is a vital problem related to the

SGP, for the reason that in actual fact there was never be severe consequences for the countries which were violating the agreement.

This was viewed to be a specific risk for confidence in the steadiness of the monetary merger. Although not sufficient time has passed over to confirm this thesis in an empirical manner, the proof seems to be fairly clear and confirming. On the other hand, at the moment the Court has elucidated that the main Council and also the associate states are also closely connected by the SGP.

But still after this pronouncement the query remains opened, if the Court will be capable to really consign the Council and the associate states. In actual fact the Court does not have real sanctioning authority.

The Court still made clear that the Council on one side does not have the right to stop the extreme deficit procedures entirely, but at the other face has the right to setback the procedure owing to reasons particular probably impromptu by this organization.

Thus also the way of change of the treaty is very much connected to this issue of power. This is one significant reason why no more than negligible alterations of the pact came about during the debate about the Convention24.

These transformations do not correct for authority imbalance and do not describe the relationship amid the Council, the Commission, the Supreme Court, and the associate countries more clearly, but they are slight ones nurturing the flexibility of the accord: deliberation of the business phase and of augmentation and employment consequences, and also the recommendations found in several fields25.

Fiscal rules rationale

Fiscal regulations in a monetary merger can serve up a double purpose; that of fostering the acceptance of time dependable fiscal policy within states and improving the policy harmonization between the countries concerned.

Drawing some parallel with the monetary strategy, an effectual way to show aggression on the politically persuaded shortfall bias and a main obstruction to the medium and the long term fiscal restraint in many states is from end to end a rules based fiscal structure that holds back the prudence of policy makers and promotes the adoption of plausible, time consistent policy.

Moreover, rules are capable of playing a crucial responsibility in coordinating the fiscal policies athwart different controls, especially by plummeting detrimental spill-over. The architects of the EMU were predominantly mindful of the supra-national measurement26.

Under unchecked caution, the political communications can encourage time-inconsistent policies, which may include a fiscal debit bias. The most advantageous fiscal policy is recurrently viewed all the way through the prism of inter-temporal tax even, with the current net present value of expenditure equivalent to the net present value of the revenues.

With this probably being the case, the budget is upheld in structural equilibrium but deficits can be able to arise from the liberated play of routine stabilizers. However, such a strategy might not be followed by policymakers for a variety of the reasons relating to the political structural design.

Alesina and Perotti (31) said persuasively that the conflicting fiscal results across industrialized countries, chiefly in the 1970s and also in the 1980s, could not be put in plain words by the prevailing economic hypothesis absent from any political and economy issues27.

The literature gives you an idea about that a plethora of inter-related aspects like fragmented regimes, a high quantity of high spending ministers acting autonomously, relative electoral systems, electoral vagueness, and short government durations, can all proceed to make sub-optimal, time inconsistent fiscal guiding principles (Roubini and Sachs, 1989; Grilli, Masciandaro, and Tabellini, 1991; Kontopoulos and Perotti, 74; Milesi-Ferretti, Perotti, and Rostagno, 613)28.

Before the coming on of the Maastricht treaty, the results of unconstrained caution manifested themselves throughout various structures of time inconsistent policies.

For the most part, many countries had persistent and indefensible deficits that fed in the course of the rapid public arrears accretion, countries like Belgium, and Greece saw their arrears spiraling higher than 100 percent of the GDP for the duration of the 1980s or in the early hours of 1990s with deficits suspended around 10 percent of the GDP in countless years.

Secondly, most EU states ran highly pro-cyclical fiscal courses of action, particularly during high-quality times (Jaeger, 20). This also leant to be more probable under alliance governments (Skilling, 29) and wherever political powers were dispersed (Lane, 2665)29.

Thirdly, most governments in most of the countries tended to create long term welfare states assurances with slight concentration to how it was possible to pay for them, foremost to the accretion of large implied liabilities (Alesina and Perotti, 24).

In addition to this, electoral deliberations affected proposed fiscal policy outcomes across all of the European democracies (Alesina, Roubini, and Cohen 213). Spillovers on or after lax fiscal policies in a monetary merger created their own common pool difficulty, justifying region wide fiscal regulations.

The aptitude to pass on in any case some of the costs of extravagant fiscal policies to other associates can worsen the common pool trouble and intensify the tendency in the direction of time inconsistent policies in any monetary amalgamation. In the euro region, the most commonly raised issues include:

A country that is running into fiscal some intricacies could be bailed out by some other countries or probably by the ECB obtaining its debt. Although prohibited by the “Maastricht treaty”, many of the observers deem that this pathway would be selected to stave off a crisis in the banking system. The probability of such a rescue leads to ethical hazard problem30.

Price constancy could be put at risk as the ECB incurs pressure from extravagant states to lower the interest rates and also to be able to inflate the debt away. Any announced price rises targets could consequently lack trustworthiness, leading to an inflation preconceived notion (Kydland and Prescott, 481; Barro and Gordon, 591).

This defeat of credibility might manifest itself throughout the depreciation of the euro, even though some policy in the counterpart countries obviously also plays a role in such a circumstance31.

Expansionary fiscal strategy in one country may perhaps add to area-wide interest rate. Domestic policy makers fell short to take into consideration the feel of the local fiscal policy on the other countries in the region. The relation between local fiscal plan and interest rates is hence loosened32.

Procedure for excessive deficit

A deficit superior than 3 percent of the GDP will trigger the EDP on condition that the surplus is not well thought-out to be outstanding, provisional, and close to the allusion value. This decisive factor is also content if the shortfall has declined considerably and incessantly and comes close up to 3 percent of the GDP.

A comparable caveat for the arrears ratio is still looser: in this realm, all that requirements to come to pass is for the proportion to be approaching the 60% of the GDP threshold at a reasonable pace.

When putting in order its original report below the EDP, the Commission takes into consideration as to whether the shortfall exceeds administration investment and at the same time considers “all other relevant factors, including the medium term economic and budgetary position of the member state”33.

Exceptional conditions

An exception is characterized to have stemmed from “an occasion externalized from the command of the associate states… which has a most important consequence on the financial situation of the common government, or when ensuing from a harsh economic slump”. In such a case like this one case, a stern economic slump is defined as a plunge in actual GDP by at least 2%.

A drop between 0.75 and 2% may perhaps be exceptional, given the supporting confirmation. It is usually not the same case when it is less than o.75%. The shortfall is termed to be provisional if it will “fall under the value which is used for reference subsequent to the end of the odd event or the harsh economic slump”.

The SGP is not known to define the nearness principle. All the three must be relevant for this run away clause to be made use of34.

First stage: in three months after the coverage date, the ECOFIN Council comes to a decision whether an extreme deficit possibly exists. If that is the case, it will right away issue a suggestion giving:

  • four months to obtain “effective accomplishment” and;
  • A time limit for the elimination of the unnecessary deficit, which is characteristically the year that follows its classification, therefore barring the special circumstances.

Second stage: After a period of four months, on condition that the ECOFIN Council thinks that the associate states is not putting into practice the measures, or that they are insufficient, or that information indicates that the disproportionate shortfall will not be approved within the instance limits which are specified, it will budge on to the subsequent step.

If the state is deemed as to have taken some effective act, the modus operandi is positioned in abeyance35. Otherwise, in one month, the Council goes ahead and gives notice for the associate states to take, in a specified instant limit, the measures required to reduce the shortfall.

This phase is only appropriate to countries in the concluding stage of the EMU. The Council might request the associate state to present regular reports to keep an eye on the adjustment efforts which are under the enhanced fiscal observation.

Final stage: If the associate state is in conformity with the given notice, the course of action is detained in abeyance. If this is not the case, the ECOFIN Council moves to the sanctions stage surrounded in two months. By this schedule, sanctions are able to be imposed in ten months of the coverage date. A non interest incurring deposit will hence be requisite.

The first phase of the deposit includes a fixed constituent of 0.2% of GDP and a changeable component equivalent to 1/10 of the difference amid the deficit and the 3%, in percent of the GDP. Each subsequent year, the Council might decide to strengthen the sanctions by having need of one more deposit (variable constituent only).

No solitary deposit can go beyond 0.5% of the GDP. If the extreme deficit has not been approved two years subsequent to the time that the deposit was completed, it shall be transformed into a fine. If, prior to a time when two years are up, the lead Council thinks about the excessive shortfall to be corrected, it consequently abrogates the modus operandi and precedes the deposit.

Fines are however not reimbursed. Interests on deposits, and the fines, shall also be distributed amongst member countries without too much deficits (Schwartz, 9).

Criteria for good fiscal rule

The SGP is required to be judged along two equivalent dimensions; first, does it promote the adoption of time consistent strategies, remedying shortfall biases? Secondly, is there an advantage in having a supra-national law at all? The answer to both these questions is definitely a yes, despite a variety of enforcement impenetrability36.

As a rule based structure, the SGP is well suitable to addressing the shortfall bias in the fiscal policy. As with monetary strategy, time consistent procedures can be attained by fastening the hands of the policymakers, by having nothing to do with unconstrained judgment, and by taking on a rule based structure.

In a lot of ways, the framework for organizing fiscal policies of the EU countries shows the characteristics of a replica fiscal regulation and is generally suitable in the circumstance of the economic union (Kopits and Symansky, 97). It is elegant, insofar as it remains simple, and also clearly defined, and crystal clear, particularly with respect to the parts that relay to unpleasant policy mistakes37.

Also, the description of gross policy faults (deficits exceeding 3 percent of GDP) is sufficient regarding the goal of upholding stability in the economic union. Absent policies to correct the fiscal pressure correlated to aging, the monetary policy might face some major difficulties above the longer run.

In addition, persistent breach of the 3 percent limit can destabilize the merger over the average run. In addition, the SGP doles out as a practical external promise technology, which is particularly valuable in nations with histories of macro-economic or even fiscal unpredictability, or politically induced shortfall biases.

However, onlookers have raised issues over whether the structure is sufficiently flexible and also enforceable and also as to whether it allows for enough ownership. Critics have said that the EDP mechanism is too dull and perfunctory. Also, the “preventive arm” is seen as deteriorating to take country precise sustainability issues into account adequately, calling like in CBS in all affected countries in spite of the circumstances38.

Mostly, on the other hand, this disapproval fails to provide due credence to the necessitation for any regulation to be straightforward and crystal clear, chiefly if it is supranational (Schuknecht, 48). Others have strained attention to shortages in the enforcement apparatus as the principal gap in the SGP’s protective covering (Buti, Eijffinger, and Franco, 20).

Inman (1999) claims that at the same time as the EU fiscal structure is effective, it trips up on the enforcement that happens to be partisan rather than sovereign, and resulting from the peer-driven nature it has39. Enforcement harms tend to be connected to possession, as several have argued that SGP is too concentrated and not adequately respectful of the subsidiary (DeGrauwe, 112).

Criticisms

General disapproval of the SGP is mostly about its pro-cyclical nature, the very weak consequences on the growth and also the employment and the possibility of exploitation, its universal incredibility, and the real criteria are approximately completely random.

“Handling” of reported data happens for the duration of the configuration process of the monetary unification and it was expected that it will be probable to rule it out in the course of the yearly convergence and constancy reports.

This leads to the extremely weak impacts on growth that are mostly due the reasons that are outlined a while before. Neither the pro cyclical quality of the agreement nor the disregard of public investment does assist economic expansion. Even supplementary, the whole agreement seems to hold only development effects that are constructed completely on prospects about the “spill-over-effects” and the favorable market behavior.

If the common legal tender will be commenced, than optimistic trade effects will take place, fostering invention and consequently leading to development. Nothing is given to ensure this.

If the monetary unification is believable than the self-confidence of the economic players will be made stronger, lowering indecision, improving prospect, fostering ventures, and consequently leading to development. Nothing is made available to ensure this (Brunila, 58).

If there is financial convergence prior to the monetary union, then the convergence will be also being sustainable and also later afterwards. Almost not anything is provided to make sure this, besides the yearly reports of associate countries, the harmonization of financial and economic politics, and a payable to political cause already strained.

Especially a blend of low price rises’ rates and an impartial budget might even lead to deflation forces and consequently may decrease actual development rates, dropping over to the other part of the EU (particularly if occurring in a big country)40.

This shows the way to some concluding remarks about centralization, the prominent voting authority, and the sanctions. If the budgetary restraint is taken critically as a necessary component of the monetary union to keep away from the bailing out of “sluttish” associates, then more efficient management is needed (Bishop, 300).

Political decisions build the possibility to define “exceptional circumstances” that permit for a divergence from the SGP in each single case on a country to country foundation.

This has some advantages as well as some disadvantages. Particularly the disadvantages could be abridged by a centralization of a checking and the voting competences in the supra-national body which is like a commission, while an intergovernmental body (similar to the Council) could create suggestions if and what

“Unique circumstances” exists that give good reason for a divergence from the SGP. Another answer might be the reweighting of the appointment authority in the Council for SGP based decisions in accordance to the budgetary regulation of the associates: the voting authority of affiliates with a fair budget or a budget excess should be enhanced, at the same time as the voting influence of members infringing the deficit measure is supposed to be reduced (Artis, 89).

One might also put forward stripping affiliates that breach the pact of their voting control completely or to initiate a similar practice according to the price rises standards41.

Works Cited

Alesina, Alberto and Roberto Perotti. “The Political Economy of Budget Deficits,” Staff Papers, International Monetary Fund, Vol. 42, No.1, pp. 1-31.

Alesina, Alberto, Nouriel Roubini, and Gerald Cohen. Political Cycles and the Macroeconomy. Cambridge, Massachusetts: MIT Press, 1999.

Artis, Michael J. The Economics of the European Union. Oxford: Oxford University Press.2001.

Barro, Robert, and David Gordon, 1983, “A Positive Theory on Monetary Policy in a Natural Rate Model,” Journal of Political Economy, Vol. 91, No. 4, pp. 589-610.

Bishop, Graham “The Future of the Stability and Growth Pact”, in: International Finance 6 (2), pp. 297-308.

Buti, Marco, Sylvester Eijffinger, and Daniele Franco “Revisiting the Stability and Growth Pact: Grand Design or Internal Adjustment?” European Economy Economics Papers, No. 180 (Brussels: European Commission). 2003.

Brunila, Anne The Stability and Growth Pact: the Architecture of Fiscal Policy in EMU. Basingstoke: Palgrave. 2001.

DeGrauwe, Paul.Economics of Monetary Union. Oxford: Oxford University Press.2001 Hule, Richard and Matthias Sutter: “Can the Stability and Growth Pact in EMU Cause Budget Deficit Cycles?” in: Empirica 30 (1), pp. 25-38.

Inman, Robert. P. “Do Balanced Budget Rules Work? U.S. Experience and PossibleLessons for the EMU,” NBER Working Paper No. 5838 (Cambridge, Massachusetts: National Bureau of Economic Research).1996

Jaeger, Albert “Cyclical Fiscal Policy Behavior in EU Countries,” IMF Staff Country Report No. 01/201 (Washington: International Monetary Fund). 2001.

Kontopoulos, Yianos, and Roberto Perotti, “Government Fragmentation and Fiscal Policy Outcomes: Evidence from OECD Countries,” Fiscal Institutions and Fiscal Performance, ed. by James Poterba and Jurgen von Hagen (Chicago, Illinois: University of Chicago Press). 1999.

Kopits, George, and Steven Symansky, “Fiscal Policy Rules,” IMF Occasional Paper No. 162 (Washington: International Monetary Fund). 1998.

Kydland, Finn, and Edward Prescott, “Rules Rather Than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy, Vol. 85, No. 3, pp. 473-92.

Lane, Philip R., “The Cyclical Behavior of Fiscal Policy: Evidence from the OECD,” Journal of Public Economics, Vol. 87, pp. 2661-675.

Milesi-Ferretti, Gian Maria, Roberto Perotti, and Massimo Rostagno, 2002, “Electoral Systems and Public Spending,” Quarterly Journal of Economics, Vol. 117, No. 4, pp. 607-57.

Schuknecht, Ludger, “EU Fiscal Rules: Issues and Lessons from Political Economy,” European Central Bank Working Paper, No. 421 (Frankfurt: European Central Bank). 2003.

Schwartz, Anna J. “Risks to the Long-Term Stability of the Euro”, in: Atlantic Economic Journal 32 (1), pp. 1-10

Skilling, David, “The Political Economy of Public Debt Accumulation in OECD Countries Since 1960,” mimeo, New Zealand Treasury. 2000.

Williamson, Oliver E.“The New Institutional Economics: Taking Stock, Looking Ahead.” in: Journal of Economic Literature 38 (3), pp. 595-613. 2000

Footnotes

1 Williamson, Oliver E.“The New Institutional Economics: Taking Stock, Looking Ahead.” in: Journal of Economic Literature 38 (3), pp. 595-613. 2000

2 Kopits, George, and Steven Symansky, “Fiscal Policy Rules,” IMF Occasional Paper No. 162 (Washington: International Monetary Fund). 1998.

3 Lane, Philip R., “The Cyclical Behavior of Fiscal Policy: Evidence from the OECD,” Journal of Public Economics, Vol. 87, pp. 2661-675.

4 Jaeger, Albert “Cyclical Fiscal Policy Behavior in EU Countries,” IMF Staff Country Report No. 01/201 (Washington: International Monetary Fund). 2001.

5 Hule, Richard and Matthias Sutter: “Can the Stability and Growth Pact in EMU Cause Budget Deficit Cycles?” in: Empirica 30 (1), pp. 25-38.

6 Hule, Richard and Matthias Sutter: “Can the Stability and Growth Pact in EMU Cause Budget Deficit Cycles?” in: Empirica 30 (1), pp. 25-38.

7 Lane, Philip R., “The Cyclical Behavior of Fiscal Policy: Evidence from the OECD,” Journal of Public Economics, Vol. 87, pp. 2661-675.

8 Schwartz, Anna J. “Risks to the Long-Term Stability of the Euro”, in: Atlantic Economic Journal 32 (1), pp. 1-10

9 Skilling, David, “The Political Economy of Public Debt Accumulation in OECD Countries Since 1960,” mimeo, New Zealand Treasury. 2000.

10 Skilling, David, “The Political Economy of Public Debt Accumulation in OECD Countries Since 1960,” mimeo, New Zealand Treasury. 2000.

11 Artis, Michael J. The Economics of the European Union. Oxford: Oxford University Press.2001.

12 Bishop, Graham “The Future of the Stability and Growth Pact”, in: International Finance 6 (2), pp. 297-308.

13 Artis, Michael J. The Economics of the European Union. Oxford: Oxford University Press.2001.

14 Artis, Michael J. The Economics of the European Union. Oxford: Oxford University Press.2001.

15 Alesina, Alberto, Nouriel Roubini, and Gerald Cohen. Political Cycles and the Macroeconomy. Cambridge, Massachusetts: MIT Press, 1999.

16 Alesina, Alberto and Roberto Perotti. “The Political Economy of Budget Deficits,” Staff Papers, International Monetary Fund, Vol. 42, No.1, pp. 1-31.

17 Williamson, Oliver E.“The New Institutional Economics: Taking Stock, Looking Ahead.” in: Journal of Economic Literature 38 (3), pp. 595-613. 2000

18 Williamson, Oliver E.“The New Institutional Economics: Taking Stock, Looking Ahead.” in: Journal of Economic Literature 38 (3), pp. 595-613. 2000

19 Milesi-Ferretti, Gian Maria, Roberto Perotti, and Massimo Rostagno, 2002, “Electoral Systems and Public Spending,” Quarterly Journal of Economics, Vol. 117, No. 4, pp. 607-57.

20 Milesi-Ferretti, Gian Maria, Roberto Perotti, and Massimo Rostagno, 2002, “Electoral Systems and Public Spending,” Quarterly Journal of Economics, Vol. 117, No. 4, pp. 607-57.

21 Kopits, George, and Steven Symansky, “Fiscal Policy Rules,” IMF Occasional Paper No. 162 (Washington: International Monetary Fund). 1998.

22 Kopits, George, and Steven Symansky, “Fiscal Policy Rules,” IMF Occasional Paper No. 162 (Washington: International Monetary Fund). 1998.

23 Lane, Philip R., “The Cyclical Behavior of Fiscal Policy: Evidence from the OECD,” Journal of Public Economics, Vol. 87, pp. 2661-675.

24 Kydland, Finn, and Edward Prescott, “Rules Rather Than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy, Vol. 85, No. 3, pp. 473-92.

25 Lane, Philip R., “The Cyclical Behavior of Fiscal Policy: Evidence from the OECD,” Journal of Public Economics, Vol. 87, pp. 2661-675.

26 Kydland, Finn, and Edward Prescott, “Rules Rather Than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy, Vol. 85, No. 3, pp. 473-92.

27 Alesina, Alberto and Roberto Perotti. “The Political Economy of Budget Deficits,” Staff Papers, International Monetary Fund, Vol. 42, No.1, pp. 1-31.

28 Alesina, Alberto and Roberto Perotti. “The Political Economy of Budget Deficits,” Staff Papers, International Monetary Fund, Vol. 42, No.1, pp. 1-31.

29 Lane, Philip R., “The Cyclical Behavior of Fiscal Policy: Evidence from the OECD,” Journal of Public Economics, Vol. 87, pp. 2661-675.

30 Barro, Robert, and David Gordon, 1983, “A Positive Theory on Monetary Policy in a Natural Rate Model,” Journal of Political Economy, Vol. 91, No. 4, pp. 589-610.

31 Kydland, Finn, and Edward Prescott, “Rules Rather Than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy, Vol. 85, No. 3, pp. 473-92.

32 Barro, Robert, and David Gordon, 1983, “A Positive Theory on Monetary Policy in a Natural Rate Model,” Journal of Political Economy, Vol. 91, No. 4, pp. 589-610.

33 Artis, Michael J. The Economics of the European Union. Oxford: Oxford University Press.2001.

34 Artis, Michael J. The Economics of the European Union. Oxford: Oxford University Press.2001.

35 DeGrauwe, Paul.Economics of Monetary Union. Oxford: Oxford University Press.2001

36 DeGrauwe, Paul.Economics of Monetary Union. Oxford: Oxford University Press.2001

37 Kopits, George, and Steven Symansky, “Fiscal Policy Rules,” IMF Occasional Paper No. 162 (Washington: International Monetary Fund). 1998.

38 Schuknecht, Ludger, “EU Fiscal Rules: Issues and Lessons from Political Economy,” European Central Bank Working Paper, No. 421 (Frankfurt: European Central Bank). 2003.

39 DeGrauwe, Paul.Economics of Monetary Union. Oxford: Oxford University Press.2001

40 Bishop, Graham “The Future of the Stability and Growth Pact”, in: International Finance 6 (2), pp. 297-308.

41 Artis, Michael J. The Economics of the European Union. Oxford: Oxford University Press.2001.

This term paper on Risk assessment for commercial loans was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.
Removal Request
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda.
Request the removal

Need a custom Term Paper sample written from scratch by
professional specifically for you?

Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar

301 certified writers online

GET WRITING HELP
Cite This paper

Select a website referencing style:

Reference

IvyPanda. (2019, May 27). Risk assessment for commercial loans. Retrieved from https://ivypanda.com/essays/risk-assessment-for-commercial-loans-term-paper/

Work Cited

"Risk assessment for commercial loans." IvyPanda, 27 May 2019, ivypanda.com/essays/risk-assessment-for-commercial-loans-term-paper/.

1. IvyPanda. "Risk assessment for commercial loans." May 27, 2019. https://ivypanda.com/essays/risk-assessment-for-commercial-loans-term-paper/.


Bibliography


IvyPanda. "Risk assessment for commercial loans." May 27, 2019. https://ivypanda.com/essays/risk-assessment-for-commercial-loans-term-paper/.

References

IvyPanda. 2019. "Risk assessment for commercial loans." May 27, 2019. https://ivypanda.com/essays/risk-assessment-for-commercial-loans-term-paper/.

References

IvyPanda. (2019) 'Risk assessment for commercial loans'. 27 May.

More related papers