Private Overborrowing Under Sovereign Risk




This paper proposes a quantitative theory of the interaction between private and public debt in an open economy. Excessive private debt increases the frequency of financial crises. During such crises the government provides fiscal bailouts financed with risky public debt. This response may cause a sovereign debt crisis, which is characterized by a higher probability of a sovereign default. The model is quantitatively consistent with the evolution of private debt, public debt, and sovereign spreads in Spain from 1999 to 2015, and provides an estimate of the degree of overborrowing, its effect on the spreads, and the optimal macroprudential policy.

Author(s): Fernando Arce

Publication Date: May 2022

Publication Site: Chicago Fed

Spain inches ahead with pension reform




Spain will pay workers to postpone retirement as part of a pensions reform strategy that analysts warn does not go far enough to cut a huge deficit in the system.

With nearly 30 billion euros ($36 billion) of annual losses in 2020 and rising, Spain’s social security budget is one of the biggest contributors to the country’s ballooning public deficit.

The European Commission has long demanded that Spain reform its pension system and has made it a condition for accessing European Union economic recovery funds.

Under a planned reform unveiled earlier this month that aims to get more people to work longer, Spain will give cheques worth up to 12,000 euros ($14,000) per year to retirement-age workers who postpone their retirement.


The 2013 reform also gradually increased the legal retirement age to reach 67 in 2027 from around 65 years currently.


Jordi Fabregat of the Esade business school said part of the problem is that Spain offers generous public pensions, with monthly payments amounting to 80 percent of a worker’s final salary compared with an average of 55 percent for all of Europe.

Publication Date: 18 July 2021

Publication Site: The Local

Bidenomics Takes Root in Europe’s Economically Fragile South



Since the 1990s, Italian leaders have tried to overhaul the sclerotic economy while also running tight budgets. Mr. Draghi is the first in decades who can deploy massive fiscal firepower to help.

Italy’s economy has rarely grown by more than 1% annually over the past quarter-century. The economy has never fully recovered from the global financial crisis and subsequent eurozone crisis, and slumped by another 9% in 2020 amid the pandemic and strict lockdowns.

Germany, France and other EU countries backed the recovery fund mainly for fear that Italy and Southern Europe could get stuck in another deep economic slump that once again tests the cohesion and survival of the eurozone.


Most of Greece’s debt is in bailout loans from the rest of the eurozone, with no repayments due for many years, making another Greek debt crisis unlikely for a long time.

Author(s): Giovanni Legorano

Publication Date: 3 May 2021

Publication Site: Wall Street Journal

How a Software Error Made Spain’s Child COVID-19 Mortality Rate Skyrocket



“Even though I didn’t know what the problem was, I knew it wasn’t the right data,” Soler realized once he got his hands on the Lancet paper. “Our data is not worse than other countries. I would say it is even better,” he says. Pediatricians across the nation contacted Spain’s main research institutes, as well as hospitals and regional governments. Eventually, they discovered that the national government somehow misreported the data. It’s hard to pinpoint exactly what went wrong, but Soler says the main issue is that patient deaths for those over 100 were recorded as children. He believes that the system couldn’t record three-digit numbers, and so instead registered them as one-digit. For example, a 102-year-old was registered as a 2-year-old in the system. Soler notes that not all centenarian deaths were misreported as children, but at least 47 were. This inflated the child mortality rate so much, Soler explains, because the number of children who had died was so small. Any tiny mistake causes a huge change in the data.

Author(s): ELENA DEBRÉ

Publication Date: 25 March 2021

Publication Site: Slate

Pausing AstraZeneca COVID-19 Shots Is a Bad Risk/Benefit Call


Last week Austria, Norway, Denmark, and Iceland all suspended the administration of the Oxford-AstraZeneca COVID-19 vaccine, citing reports of blood clots occurring in a few folks who had been inoculated with it. Ireland, France, Germany, Italy, Spain, Thailand, and the Netherlands have now joined them.

“There is no causal effect established or anything like that yet,” Irish Prime Minister Micheal Martin told CNBC, “but as a precautionary move in line with the precautionary principle and in an abundance of caution, our clinical advice was to pause the program whilst the EMA does a review of this.”

The precautionary principle is an ideological construct that eschews risk-benefit evaluations and essentially requires that all new technologies be somehow proved entirely risk-free before they can be used.

Author(s): Ronald Bailey

Publication Date: 15 March 2021

Publication Site: Reason

Spain Counts on Citizens to Buy Into Revolution for Pensions




Spain is hoping to entice people to prepare for retirement with a voluntary saving plan as it tries to wean them off relying solely on state pensions.

The aim is to set up a fund run by private investment companies by the end of the year, offering Spaniards an affordable alternative to supplement their public pension. But unlike some other countries, the system will require workers to opt in rather than being automatically enrolled.

“We think there’s a group of middle- and low-income Spaniards who will be interested in a boost to their lifetime savings, which can complement their public pension,” Jose Luis Escriva, the social security minister for Spain’s Socialist-led government, said in an interview.

Author(s): Jeannette Neumann

Publication Date: 19 February 2021

Publication Site: Yahoo Finance