Financial Reforms for Resilience in the Mediterranean
Inclusive growth and poverty reduction are vital in mitigating economic challenges in Mediterranean countries. The COVID crisis has exacerbated existing vulnerabilities, necessitating financial reforms for stability. Global financial transmission mechanisms, vulnerability of Southern Mediterranean countries, and policy recommendations are examined to address the region's economic and financial concerns.
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Presentation Transcript
Financial reforms for Financial reforms for resilience in the Mediterranean Mediterranean resilience in the LUIS REYES LUIS REYES AND THOMAS LAGOARDE-SEGOT luis.reyes@kedgebs.com ; thomas.lagoardesegot@kedgebs.com KEDGE BUSINESS SCHOOL
Introduction Inclusive growth and poverty reduction are important for fostering justice and reducing inequalities The COVID crisis has hit a region under severe economic and social and political stress Mediterranean countries are simultaneously suffering the consequences of the pandemic and the pre-existing international financial instability Oil producers/exporters have been directly affected by the decline in demand and the price of oil These economies are vulnerable to the slowdown in FDI, especially coming from Europe
Vulnerability of Southern Mediterranean countries Global financial transmission mechanisms of the lockdown include: Adverse commodity price developments (especially for oil-producing and exporting countries) in global risk aversion Rush to the USD the value of the domestic currency against the USD in capital inflows (particularly FDI) These developments make foreign debt more difficult to honor Since the USD is the dominant currency, capital has been flowing from South to North, instead of the other way around
Conclusion and some policy recommendations ECB swap lines to cover liquidity needs Given the possibility of a USD devaluation starting next year, financing investments could be oAlso denominated in other currencies (euro, yen, yuan, sterling) oRapidly provided via Special Drawing Rights, managed by the IMF Regional cooperation measures for the regulation of capital flows (in particular to prevent further devaluations) Creation of an extra-financial Euro-Mediterranean rating agency, which takes into account ESG criteria
